THE MINISTRY OF FINANCE Circular No. 06/2012/TT-BTC of January 11, 2012, guiding the implementation of a number of articles of the Law on Value-Added Tax and the Government’s Decrees No. 123/2008/ND-CP of December 8, 2008, and No. 121/2011/ND-CP of December 27, 2011 Pursuant to June 3, 2008 Law No. 13/2008/QH12 on Value-Added Tax; Pursuant to November 29, 2006 Law No. 78/2006/QH11 on Tax Administration; Pursuant to the Government’s Decree No. 123/2008/ND-CP of December 8, 2008, detailing and guiding a number of articles of the Law on ValueAdded Tax; Pursuant to the Government’s Decree No. 121/2011/ND-CP of December 27, 2011, amending and supplementing a number of articles of the Government’s Decree No. 123/2008/ND-CP of December 8, 2008, detailing and guiding a number of articles of the Law on Value-Added Tax; Pursuant to the Government’s Decree No. 118/2008/ND-CP of November 27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance; The Ministry of Finance guides the implementation of value-added tax as follows: Chapter I GENERAL PROVISIONS Article 1. Scope of regulation This Circular provides taxable objects, non-taxable objects, taxpayers, tax bases and tax calculation methods, and credit and refund of value-added tax. Article 2. Taxable objects Liable to value-added tax (VAT) are goods and services used for production, business and consumption in Vietnam (including goods and services purchased from overseas organizations and individuals), except those not liable to VAT specified in Article 4 of this Circular. Article 3. Taxpayers Vietnam Law & Legal Forum 1 VAT payers are organizations and individuals producing or trading in VAT-liable goods and services in Vietnam, regardless of their business lines, forms and organization (below referred to as business establishments) and organizations and individuals that import from abroad goods or purchase services liable to VAT (below referred to as importers), including: 1. Business organizations established and making business registration under the Enterprise Law, the Law on State Enterprises (now the Enterprise Law) or the Law on Cooperatives. 2. Economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, people’s armed forces units, non-business organizations and other organizations. 3. Foreign-invested enterprises and foreign parties to business cooperation contracts under the Law on Foreign Investment in Vietnam (now the Investment Law); foreign organizations and individuals conducting business activities in Vietnam without establishing legal entities in Vietnam. 4. Individuals, households, groups of independent business persons and other entities engaged in production, business or import activities. 5. Vietnam-based production and business organizations and individuals that purchase services (including services associated with goods) from foreign organizations without permanent establishments in Vietnam or overseas individuals being non-residents in Vietnam. In this case, service purchasers are taxpayers. Permanent establishments and non-residents in Vietnam are determined under the laws on enterprise income tax and personal income tax. Article 4. Objects not liable to VAT 1. Products of cultivation (including products from planted forests) and husbandry, cultured and fished aquatic and marine products which have not yet been processed into other products or have only been preliminarily processed by ordinary methods then sold by producing or fishing organizations or individuals themselves and at the stage of importation. Products preliminarily processed by ordinary methods are those which have only been cleaned, sun-dried, heat-dried, peeled, pitted, cut, salted, frozen or otherwise ordinarily preserved. Vietnam Law & Legal Forum 2 Example 1: Sun-drying, heat-drying, peeling, pitting or cutting of cultivation products; cleaning, sun-drying, heat-drying, salting or icing of cultured or fished aquatic and marine products. 2. Animal breeds and plant varieties, including breeding eggs and animals, seedlings, seeds, seeding twigs and bulbs, sperms, embryos and genetic materials at the stages of rearing, importation and trading. Animal breeds and plant varieties not liable to VAT are those imported and traded by establishments possessing animal breed or plant variety business registration certificates issued by state management agencies. Animal breeds or plant varieties subject to quality standards promulgated by the State must satisfy state-prescribed conditions. 3. Water irrigation and drainage; soil plowing and harrowing; intra-field canal and ditch dredging for agricultural production; services of harvesting farm produce. 4. Salt products made from seawater, natural rock salt, refined salt and iodized salt, the principal component of which has the chemical formula of NaCl. 5. State-owned houses sold by the State to current tenants. 6. Transfer of land use rights. 7. Insurance including life insurance; human health and accident insurance; student insurance and insurance services related to humans; livestock insurance, crop insurance and other agricultural insurance services; reinsurance. 8. Financial activities: a/ Credit extension services provided by credit institutions in the following forms: - Loan provision; - Discount and rediscount of negotiable instruments and other valuable papers; - Bank guarantee; - Financial leasing; - Issuance of credit cards; - Domestic factoring; international factoring, for banks licensed to provide international payment; - Other forms of credit extension under law. Vietnam Law & Legal Forum 3 Assets which are used to secure loans of VAT payers or assets the ownership of which has been transferred to lenders, when sold, are subject to VAT, except those not liable to VAT specified in Article 4 of this Circular. Example 2: Limited Liability Company A mortgages a machinery and equipment chain to borrow a loan from Bank B. When the loan matures under the credit contract, as Company A is unable to repay its debt, Bank B sells the security asset (regardless of whether or not the ownership of such asset has been transferred to Bank B) to recover the debt. In this case, such asset is liable to VAT. b/ Securities trading, covering securities brokerage, securities dealing, securities issuance underwriting, securities investment consultancy, securities depository, securities investment fund and securities investment company management, securities investment portfolio management, market organization services provided by stock exchanges or securities trading centers, services involving securities registered or deposited at Vietnam Securities Depository, provision of margin loans, advance payment for securities sale and other services specified by the Ministry of Finance. Supply of information on, and organization of, auctions for sale of shares of issuing organizations, and technical assistance for online securities trading by Securities Stock Exchanges. c/ Capital transfer, covering the transfer of part or the whole of invested capital amounts, including sale of enterprises to other enterprises for production and business; securities transfer; and other forms of capital transfer under law. d/ Debt sale. e/ Foreign currency trading. f/ Derivative financial services, including interest rate swap, forward contracts, future contracts, foreign exchange put and call options and other derivative financial services under law. 9. Healthcare and animal health services, including medical examination and treatment and preventive medicine services for humans and livestock, birth control services, health convalescence and functional rehabilitation services for patients. Healthcare services cover also transportation of patients, lease of patient rooms and beds at medical establishments; test, screening, radiograph, blood and blood preparations for patients. Vietnam Law & Legal Forum 4 In case a medical treatment package (as provided by the Ministry of Health) covers also medicaments, the revenue from these medicaments is not liable to VAT. 10. Public-utility post and telecommunications services and universalized Internet services under the Government’s programs; post and telecommunications services provided from abroad to Vietnam (incoming services). 11. Public services on sanitation and water drainage in streets and residential quarters; maintenance of zoos, flower gardens, parks and street greeneries and public lighting; and funeral services, regardless of their funding sources. Specifically: a/ Public services on sanitation and water drainage in streets and residential quarters provided to organizations and individuals include garbage and waste collection, transportation and treatment; wastewater drainage and treatment; suction, transportation and treatment of sludge and sink residues; dredging of lavatories and wastewater drainage systems; public toilet cleaning; maintenance of hygiene for mobile toilets; and collection, transportation and treatment of other wastes. House and office cleaning services provided by service establishments are liable to VAT. Example 3: Limited Liability Company B provides office cleaning services to unit C and lobby and elevator cleaning services to apartment building H, these services are liable to VAT. b/ Maintenance of zoos, flower gardens, parks and street greeneries covers activities of managing, planting and tending trees and protecting birds and animals in parks, zoos, public places, national forests and national parks. c/ Public lighting means lighting of streets, lanes and alleys in residential areas, flower gardens and parks. d/ Funeral services provided by establishments with the function of providing funeral services cover activities of leasing funeral homes, hearses and cars, burial, cremation and disinterment. 12. Maintenance, repair and construction of cultural, art and public-utility works, infrastructure facilities and houses for social policy beneficiaries funded with people’s contributions and humanitarian aid. For funding sources other than people’s contributions (including amounts contributed or donated by organizations and individuals) and humanitarian aid, if the amount from these sources does not exceed 50% of the total funds used for a work, the whole value of the work is not liable to tax. Vietnam Law & Legal Forum 5 Social policy beneficiaries include people with meritorious services as specified by the law on people with meritorious services; social relief beneficiaries entitled to state budget allowances; members of households classified as poor or living just above the poverty line; and other cases under law. 13. Teaching and vocational training as provided by law, including also teaching of foreign languages, informatics, dancing, singing, painting, music, drama, circus, physical training and sports; child nursing, and other job-training activities aiming to train, retrain and raise educational level or professional knowledge and skills. For education institutions from preschools to upper secondary schools that collect school meal and pupil transportation charges and have other revenues through authorized collection and spending, these charges and revenues are not liable to VAT. Revenues earned from provision of boarding services to pupils, students and learners and training activities (including also organization of exams and grant of certificates as part of the training process) of training institutions are not liable to VAT. Revenues from the service of organizing exams and granting certificates not associated with training are liable to VAT. 14. Radio and television broadcasting funded with the state budget. 15. Publication, import and distribution of newspapers, magazines and specialized bulletins, political books, textbooks, teaching course books, law books, scientific and technical books, books printed in ethnic minority languages, and pictures, photos and posters for public communication and mass agitation purposes, including those recorded in audio-visual tapes and disks or electronic files; printing of banknotes. Newspapers, magazines and specialized bulletins cover also transmission of their pages. Political books are books disseminating the political line of the Party and the State, serving political tasks under specific themes or topics, serving anniversaries or traditional days of organizations, levels, sectors and localities; statistic books; books about good people and good deeds; and books of speeches, research and theoretical papers of Party and State leaders. Textbooks are books used for teaching and learning at the levels from preschool to upper secondary school (including reference books for teachers and pupils relevant to contents of education curricula). Vietnam Law & Legal Forum 6 Teaching course books are books used for teaching and learning in universities, colleges, professional secondary and vocational training schools. Law books are books of legal documents of the State. Scientific and technical books are books introducing and guiding scientific and technical knowledge directly related to production and various scientific and technical sectors. Books printed in ethnic minority languages include also bilingual books in Vietnamese and an ethnic minority language. Public communication and mass agitation pictures, photos and posters are pictures, photos, posters, leaflets and brochures used for public communication and mass agitation purposes, slogans, leaders’ pictures, the Party’s flag, the national flag, the Youth Union’s flag, the Young Pioneers League’s flag. 16. Mass transit by bus and tramcar means public transportation of passengers by bus or tramcar along specified routes within provinces, urban centers and in their vicinities under the Ministry of Transport’s regulations. 17. Goods which cannot be produced at home and are imported in the following cases: a/ Machinery, equipment and supplies imported to directly serve scientific research and technological development activities; b/ Machinery, equipment, spare parts, special-use means of transport and supplies which need to be imported for prospecting, exploring and developing oil and gas fields; c/ Aircraft (including aircraft engines), derricks and ships imported to form fixed assets of enterprises or hired from abroad for production and business, including cases in which such goods are imported and then subleased. In order to identify goods not liable to VAT at the stage of importation under this Point, importers shall produce to customs offices documents as guided in the Ministry of Finance’s regulations on customs procedures; customs inspection and supervision; import and export duties and tax administration of imports and exports. The Ministry of Planning and Investment shall promulgate the list of machinery, equipment and supplies which can be produced at home, for use in distinguishing them from those which cannot be produced at home and need to be imported to directly serve scientific research and Vietnam Law & Legal Forum 7 technological development; the list of machinery, equipment, spare parts, special-use means of transport and supplies which can be produced at home, for use in distinguishing them from those which cannot be produced at home and need to be imported for prospecting, exploring and developing oil and gas fields; and the list of aircraft, derricks and ships which can be produced at home, for use in distinguishing them from those which cannot be produced at home and need to be imported to form fixed assets of enterprises or hired from abroad for production, business or lease. 18. Weapons and military equipment exclusively for defense and security purposes. a/ Weapons and military equipment exclusively used for defense and security purposes are specified in the lists of weapons and military equipment exclusively for defense and security purposes promulgated by the Ministry of Finance after reaching agreement with the Ministry of National Defense and the Ministry of Public Security. Weapons and military equipment exclusively used for defense and security purposes not liable to VAT must be finished products in complete sets or parts, accessories and packages used exclusively for assembling and preserving finished products. The service of repairing these weapons and military equipment provided by enterprises of the Ministry of National Defense or the Ministry of Public Security is also not liable to VAT. b/ Weapons and military equipment (including supplies, machinery, equipment and spare parts) exclusively used for defense and security purposes which are exempt from import duty under the Law on Import Duty and Export Duty or imported within annual quotas approved by the Prime Minister. Dossiers and procedures for weapons and military equipment not subject to VAT at the stage of importation comply with the Ministry of Finance’s regulations on customs procedures; customs inspection and supervision; import and export duties and tax administration of imports and exports. 19. Imported goods and goods and services sold to organizations and individuals for use as humanitarian or non-refundable aid as follows: a/ Goods which are imported for use as humanitarian aid or non-refundable aid goods and certified by the Ministry of Finance; b/ Gifts given to state agencies, political organizations, socio-political organizations, socio-political-professional organizations, social organizations, socio-professional organizations or people’s armed forces units under the law on gifts; c/ Gifts given to individuals in Vietnam under the law on gifts; Vietnam Law & Legal Forum 8 d/ Personal effects of foreign organizations and individuals within diplomatic immunity quotas under the law on diplomatic immunities; and personal effects brought along by overseas Vietnamese upon their return to the country; e/ Personal effects within duty-free luggage quotas; The quotas of imported goods not subject to VAT at the stage of importation comply with the import duty-free quotas prescribed in the Law on Import Duty and Export Duty and its guiding documents. Goods imported by organizations and individuals entitled to diplomatic immunities under the Ordinance on Diplomatic Immunities are not liable to VAT. If these organizations or individuals purchase goods and services in Vietnam and pay VAT thereon, they will be eligible for tax refund under Clause 7, Article 18 of this Circular. Subjects, goods, procedures and dossiers for enjoying VAT exemption under this Article comply with the Ministry of Finance’s guidance on VAT refund for Vietnam-based diplomatic missions, consulates and representative agencies of international organizations. f/ Goods and services sold to foreign organizations or individuals or international organizations for use as humanitarian aid or non-refundable aid to Vietnam. To enjoy VAT exemption for goods and services purchased in Vietnam for use as humanitarian aid or non-refundable aid to Vietnam, an international organization or a foreigner shall send to the goods seller a document clearly stating its/his/her name and the quantity or value of the purchased goods and containing the Ministry of Finance’s written certification of such aid. When selling goods, the business establishment shall issue an invoice according to the law on invoices and keep the document of the international organization or its Vietnamese representative agency as a basis for tax declaration. Such an invoice must clearly state that goods are sold to a foreign organization or individual or international organization for use as non-refundable aid or humanitarian aid, and not liable to VAT. In case a foreign organization or individual or international organization purchases goods or services in Vietnam for use as non-refundable aid or humanitarian aid and has paid VAT-inclusive prices, it/he/she will be eligible for tax refund under Clause 6, Article 18 of this Circular. 20. Goods transported from a border gate to another or transited through the Vietnamese territory; goods temporarily imported for re-export, goods temporarily exported for re-import; raw materials imported for export Vietnam Law & Legal Forum 9 production or processing under export production or processing contracts signed with foreign parties. Goods and services that are sold and purchased between foreign countries and non-tariff zones and between non-tariff zones. Non-tariff zones include export processing zones, export processing enterprises, bonded warehouses, bonded zones, special trade and economic zones, trade and industrial zones and other economic zones established and enjoying tax incentives like non-tariff zones under the Prime Minister’s decisions. Goods purchase, sale and exchange relations between these zones and outside areas are import and export relations. Dossiers and procedures for determining and deciding on non-collection of VAT in these cases comply with the Ministry of Finance’s regulations on customs procedures; customs inspection and supervision; import and export duties and tax administration of imports and exports. 21. Technology transfer under the Law on Technology Transfer; assignment of intellectual property rights under the Law on Intellectual Property. For technology transfer or intellectual property right assignment contracts accompanied with machinery and equipment transfer, only the value of transferred technology or assigned intellectual property rights is not liable to VAT. If the value of transferred technology or assigned intellectual property rights cannot be separated, VAT will be imposed on both the value of transferred technology or assigned intellectual property rights and that of machinery and equipment. Computer software includes software products and software services as provided by law. 22. Gold imported in the form of bar or ingot and gold not yet fashioned into fine-art articles, jewelry or other products. Gold in the form of bar or ingot and gold in an unfashioned state shall be determined under the law on gold management and trading. 23. Export products that are unprocessed exploited natural resources and minerals. Unprocessed exploited natural resources and minerals are those not yet processed into other products, including also minerals already screened, sorted, grinded, crushed or treated for higher concentrations or other natural resources already cut or sawn. Example 4: Business A exports natural stone products in the forms of stone blocks and slabs. In this case, exported natural stone products are not liable to VAT. Vietnam Law & Legal Forum 10 Example 5: Business B exports white limestone in the forms of granule and powder. In this case, these export products are not liable to VAT. If business B exports super-fine stone powder (according to criteria issued by competent agencies) and acid-coated super-fine stone powder, these products shall be determined as processed products and therefore, are subject to VAT at the stage of exportation. 24. Artificial products used as substitutes for diseased people’s organs, including also those being body parts for permanent implantation in human bodies; crutches, wheelchairs and other tools used exclusively for people with disabilities. 25. Goods and services of business individuals with an average monthly income lower than the common minimum salary level applicable to domestic organizations and enterprises under the Government’s regulations on region-based minimum salary levels applicable to employees of companies, enterprises, cooperatives, cooperative groups, farms, households, individuals and other Vietnamese organizations that employ laborers. 26. The following goods and services: a/ Goods for duty-free sale at duty-free shops under the Prime Minister’s regulations. b/ National reserve goods sold by the National Reserves. c/ Services for which charges or fees are collected by the State under the law on charges and fees. d/ Sweeping of bombs, land mines and explosive objects performed by defense units for state budget-funded projects. Any change in the use purposes of goods not liable to VAT at the stage of importation must be declared for VAT payment at the stage of importation under regulations to customs offices with which customs declarations are registered. Organizations and individuals that sell goods on the domestic market shall declare and pay VAT under regulations to tax agencies directly managing them. Article 5. Cases not requiring VAT declaration and payment 1. Goods and services provided outside Vietnam by Vietnam-based taxpayers, except international transportation from an overseas place to another; In case service provision activities are carried out both in Vietnam and overseas, such services are subject to VAT for the contract value Vietnam Law & Legal Forum 11 performed in Vietnam, except the provision of insurance services for imported goods. Example 6: Company A and Company B (both are Vietnamese enterprises) sign a lubricant sale and purchase contract. Company A buys lubricants from companies in Singapore and then sell them to Company B at Singapore’s seaports. In this case, Company A does not have to declare, calculate and pay VAT on the turnover from the sale of such lubricants. Example 7: Company D signs with unit X, a Vietnamese state management agency, a contract to organize an art performance in the Netherlands. In this case, Company D does not have to declare, calculate and pay VAT on the turnover earned from the contract. Example 8: Company B signs with Company C a contract to provide consultancy, exploration and design services for a Cambodia-based investment project of Company C (both companies are Vietnamese enterprises). In case the contractual services are provided partially in Vietnam and partially in Cambodia, Company B does not have to declare, calculate and pay VAT on the value of the services provided in Cambodia but shall declare, calculate and pay VAT according to regulations on the value of the services provided in Vietnam. Example 9: Insurance Company Y (a Vietnamese enterprise) signs with Limited Liability Company X a contract to provide insurance services for Company X’s imported goods from France to its warehouse in Vietnam. In this case, Company Y does not have to declare, calculate and pay VAT on turnover earned from the insurance contract signed with Company X. 2. Revenues from compensation, bonus, support, transfer of the emission right and other financial revenues, except loan interests received by enterprises other than credit institutions. When receiving compensation, bonus, support, transfer of the emission right and other financial revenues, business establishments shall make receipt documents according to regulations. Paying business establishments shall make payment documents based on the purposes of expenditures. An establishment that pays compensation in goods or services shall make an invoice as for sale of goods or services. The establishment receiving compensation shall declare and credit VAT according to regulations. Example 10: Joint-Stock Company VC signs a contract to provide enterprise T a 6 month-term loan and receives an interest thereon. In this case, Company VC shall declare and pay VAT on the amount of interest earned from this loan contract. Vietnam Law & Legal Forum 12 Example 11: Limited Liability Company P&C receives an interest on purchased bonds and dividends on purchased shares of other enterprises. In this case, Limited Liability Company P&C does not have to declare and pay VAT on such interest and dividends. Example 12: Enterprise B receives from enterprise B an amount of VND 50 million as compensation for contract cancellation. In this case, enterprise A shall make a receipt document and does not have to declare and pay VAT on that amount. Example 13: Enterprise X purchases goods from enterprise Y. It also advances a sum of money to enterprise Y and receives from enterprise Y an amount of interest thereon. In this case, enterprise X does not have to declare and pay VAT on the received interest amount. Example 14: Enterprise X sells goods to enterprise Z at a total price of VND 440 million. Under the signed contract, enterprise Z is allowed to make deferred payment within 3 months and the interest rate on deferred payment is 1% of the total contractual price. After 3 months, enterprise X receives from enterprise Z VND 440 million, which is the total contractual payment price, and of VND 13.2 million, which is the deferred payment interest (VND 440 million x 1% x 3 months). In this case, enterprise X does not have to declare and pay VAT on the amount of VND 13.2 million. 3. Vietnam-based production and business organizations and individuals that purchase from foreign organizations without permanent establishments in Vietnam or overseas individuals not residing in Vietnam such services as repair of vehicles, machinery and equipment (including supplies and spare parts); advertising and marketing; investment and trade promotion; goods sale and service provision brokerage; training; and shares of charges for international post or telecommunications services provided outside Vietnam between Vietnamese and foreign partners. 4. Non-business organizations and individuals that are not VAT payers are not required to declare and calculate VAT when selling their assets, including cases of selling assets they are using to secure loans at banks or credit institutions. Example 15: Mr. A, a non-business person, sells a 4-seat car to Mr. B at the price of VND 600 million. In this case, Mr. A does not have to declare and pay VAT on the proceeds from the sale of his car. Example 16. Mr. E, a non-business person, mortgages a 4-seat car to borrow money from bank VC. As he is unable to pay his debt to bank VC on the contractual due date, his mortgaged car is put up for compulsory sale for debt recovery. In this case, VAT declaration and payment is not required for the proceeds from the compulsory sale of this car. Vietnam Law & Legal Forum 13 5. In case a fixed asset currently in use for which depreciation has been made is transferred according to its book value between a business establishment and a member unit in which the business establishment owns 100% of capital or between member units wholly owned by a business establishment to serve the production or provision of VAT-liable products or services, it is not required to make invoices and declare and pay VAT. The business establishment having such asset shall make an asset transfer decision or order, enclosed with a dossier on the origin of the asset. In case an asset has been re-valuated before transfer or is transferred to an establishment producing or providing goods or services not liable to VAT, it is required to issue a value-added invoice and declare and pay VAT according to regulations. 6. Other cases: A business establishment is not required to declare and pay tax on: a/ Assets contributed as capital to form an enterprise. Such assets must be accompanied with a written record on the contribution of capital for production and business; a joint-venture or association contract; an asset valuation record made by the contributed capital delivery and receipt council set up by capital-contributors (or a valuation document issued by a functional organization according to law), enclosed with a dossier on the origin of such assets; b/ Assets transferred between its dependent cost-accounting units; assets transferred upon its split, separation, consolidation, merger or transformation. When transferring an asset between its dependent costaccounting units or transferring an asset upon its split, separation, consolidation, merger or transformation, the business establishment having such asset shall make an asset transfer order, enclosed with a set of dossier on the origin of such asset, but does not have to issue an invoice. For an asset transferred between its independent cost-accounting units or member units having the legal persons status, the establishment having such asset shall issue a value-added invoice and declare and pay tax according to regulations, except the cases guided in Clause 5 of this Article; c/ Third-party claims in insurance activities; d/ Authorized collections not related to the sale of goods and services by the business establishment; e/ Turnover from goods and services for which the business establishment acts as a sale agent and agency commission for acting as a sale agent selling goods at prices fixed by principal establishments for such services Vietnam Law & Legal Forum 14 as posts, telecommunications, lottery tickets and air, car, train and boat tickets; international transport agents; agents for aviation and maritime services applicable to the VAT rate of 0%; insurance sale agents; f/ Turnover from goods and services not liable to VAT and commissions for acting as a sale agent of goods and services not liable to VAT. Chapter II TAX BASES AND TAX CALCULATION METHODS Section 1 TAX BASES Article 6. Tax bases The bases for calculating VAT are taxed price and tax rate. Article 7. Taxed prices 1. For goods and services sold by production and business establishments, the taxed price is the selling price exclusive of VAT. For excise tax-liable goods and services, the taxed price is the selling price inclusive of excise tax but exclusive of VAT. For environmental protection tax-liable goods, the taxed price is the selling price inclusive of environmental protection tax but exclusive of VAT; for goods and services liable to both excise tax and environmental protection tax, the taxed price is the selling price inclusive of excise tax and environmental protection tax but exclusive of VAT. 2. For imported goods eligible for exemption from or reduction of import duty, the taxed price is the import price plus (+) the payable import duty determined at the applicable duty rate after subtracting the exempted or reduced amount. 3. For goods and services (including those purchased from outside or produced by business establishments themselves) which are used for barter, presentation as gifts, donation or payment of salaries, the taxed price is that of goods or services of the same or similar type at the time such activities are carried out. Example 17: Establishment A, an electric fan manufacturer, barters 50 fans with establishment B for iron and steel. The selling price (exclusive of VAT) of a fan is VND 400,000. In this case, the taxed price is 50 x VND 400,000 = VND 20,000,000. Particularly for letters of invitation (free-of-charge) to art performances, fashion shows, beauty and model contests or sports competitions licensed by competent state agencies, the taxed price is zero (0). Vietnam Law & Legal Forum 15 Art performance organizers shall determine and take responsibility for the number of letters of invitation and lists of organizations and individuals that will receive letters of invitation before art performances or sports competitions take place. Those who commit fraudulent acts by collecting money for letters of invitation shall be handled according to the law on tax administration. Example 18: Joint-Stock Company X is licensed to organize the “Miss Vietnam 20xx” contest. In addition to the quantity of tickets printed for sale to the public, the company prints a certain number of invitation letters for free-of-charge presentation, enclosed with a list of invited guests. When declaring VAT, the taxed price of such letters of invitation is zero (0). If tax agencies detect that Company X collects money for such letters of invitation, Company X shall be handled according to the law on tax administration. 4. Taxed prices of products, goods and services for internal consumption For a product, goods or service delivered or provided by a business establishment for consumption to serve its business activities (internal consumption), the taxed price is that of the same or similar product, goods or service at the time of consumption. The business establishment may declare and credit VAT amounts for value-added invoices issued for products, goods or services delivered for internal consumption to serve the production or provision of VAT-liable goods or services. For goods which are transferred within a production or business establishment such as goods transferred within the business’s warehousing system or ex-warehoused as supplies or semi-finished products for further manufacture, VAT calculation and payment are not required. Example 19: Unit A, an electric fan manufacturer, installs 50 fans, which are its products, in its production workshops. The selling price (exclusive of VAT) of a fan of this kind is VND 1,000,000 and the applicable VAT rate is 10%. The taxed price is VND 1,000,000 x 50 = VND 50,000,000 Unit A shall issue an added-value invoice indicating the taxed price of VND 50,000,000 and the VAT amount of VND 5,000,000. Unit A may declare and credit VAT for this invoice. Example 20: Garment producer B has a yarn workshop and a sewing workshop. If it transfers finished yarn from the yarn workshop to the sewing workshop for further use in the production process, it is not required to calculate and pay VAT for the quantity of yarn delivered to the sewing workshop. Vietnam Law & Legal Forum 16 Particularly, business establishments that use internally consumed goods and services for production and business activities for which output VAT calculation is not required, such as transportation, aviation, railway, post and telecommunications, shall issue a document to specify internally consumed goods and services and their consumption limits according to their competence. 5. For property lease services such as leasing houses, offices, workshops, warehouses, wharves, yards, means of transport, machinery, equipment, etc., the taxed price is the VAT-exclusive rent. In case of leasing with rent paid in installments or prepaid for a leasing term, the taxed price is the rent amount paid in installments or prepaid for the leasing term, exclusive of VAT. In case of leasing foreign-made machinery, equipment or means of transport which cannot be manufactured at home for sub-lease, the taxed price is exclusive of the rent payable to the foreign party. Applicable rent rates are those agreed upon by involved parties in their contracts. When a rent rate bracket is prescribed by law, rent rates must be within that bracket. 6. For goods sold on installment or deferred payment, the taxed price is the lump-sum VAT-exclusive selling price, excluding interests on installment or deferred payments. Example 21: A motorbike trading company sells 100-cc motorbikes of X brand. The VAT-exclusive selling price of a motorbike is VND 25.5 million (including an installment interest of VND 0.5 million). In this case, the taxed price is VND 25 million. 7. For goods processing, the taxed price is the VAT-exclusive processing price under the processing contract, consisting of remuneration, costs of fuel, power, auxiliary materials and other expenses for the processing operation. 8. For construction and installation, the taxed price is the VAT-exclusive value of the completed and handed over work, work item or job. a/ For cases of construction and installation involving contracted supply of materials, the taxed price is the construction and installation price, inclusive of the VAT-exclusive value of materials. Example 22: Construction company B enters into a work construction contract, covering also the value of construction materials. The VATexclusive total payment value is VND 1.5 billion, of which the VAT- Vietnam Law & Legal Forum 17 exclusive value of construction materials is VND 1 billion. Then the taxed price is VND 1.5 billion. b/ For cases of construction and installation without contracted supply of materials, the taxed price is the construction and installation value exclusive of the VAT-exclusive value of materials. Example 23: Construction company B enters into a work construction contract not covering the value of construction materials. If the total VATexclusive value of the work is VND 1.5 billion and the VAT-exclusive value of construction materials supplied by investor A is VND 1 billion, then the taxed price in this case is VND 500 million (VND 1,500 million VND 1,000 million). c/ For construction and installation with payments to be made for each completed and taken-over construction item or based on the value of the completed and taken-over construction and installation volume, the taxed price is the VAT-exclusive value of the completed and taken-over construction item or work volume. Example 24: Textile company X (party A) hires construction company Y (party B) to perform construction and installation work to expand a workshop. The total VAT-exclusive value of the work is VND 200 billion, including: - The construction and installation value: VND 80 billion - The value of equipment supplied and installed by party B: VND 120 billion. - VAT amount 10%: (80 + 120) x 10% = VND 20 billion. - Total amount payable by party A: VND 220 billion: - Party A shall: + Take over the workshop, account it as an increase of VND 200 billion (VAT-exclusive value) in the value of its fixed assets for depreciation calculation. + Declare and credit the VAT amount of VND 20 billion against the output VAT on goods sold, or request tax refund under regulations. If party A tests, takes over the work and accepts to make payment to party B per construction item (presuming that a VND 80 billion-construction and installation volume is tested, taken over and paid for first) then the taxed price is VND 80 billion. 9. For real estate trading, the taxed price is the real estate transfer price minus (-) the land price allowed to be subtracted when determining VAT. Vietnam Law & Legal Forum 18 a/ The land price allowed to be subtracted when determining VAT is specified as follows: a.1/ For land allocated by the State for building infrastructure or houses for sale, the land price allowed to be subtracted when determining VAT includes the land use levy to be paid into the state budget (exclusive of exempted or reduced land use levy amounts) and expenses for compensation and ground clearance according to law; Example 25: In 2011, real estate company A is allocated land by the State to build infrastructure and houses for sale. The payable land use levy (exclusive of exempted or reduced land use levy amounts and expenses for compensation and ground clearance according to the approved plan) is VND 30 billion. The project is entitled to a 20% reduction of the payable land use levy amount. The expense for compensation and ground clearance under the approved plan is VND 15 billion. The total value of land to be subtracted is determined as follows: - The exempted or reduced land use levy amount: VND 30 billion x 20% = VND 6 billion; - The land use levy amount to be paid into the state budget (exclusive of the exempted or reduced land use levy amount): VND 30 billion - 6 billion - 15 billion = 9 billion. - The total land price allowed to be subtracted when calculating VAT, inclusive of the land use levy to be paid into the state budget (exclusive of the exempted or reduced land use levy amount) and the expense for compensation and ground clearance), is: VND 9 billion + 15 billion = 24 billion. The total land price allowed to be subtracted shall be allocated to the number of square meter allowed for sale. a.2/ In case of land use right auction, the land price allowed to be subtracted when determining VAT is the successfully bid land price; a.3/ In case of leasing land for building infrastructure or houses for sale, the land price allowed to be subtracted when determining VAT is the land rent to be paid into the state budget (exclusive of the exempted or reduced land rent amount) plus the expense for compensation and ground clearance according to law. a.4/ In case a business establishment receives land use rights transferred from an organization or individual, the land price allowed to be subtracted when determining VAT is the land price at the time of transfer, inclusive the value of infrastructure (if any). The business establishment may not declare and credit input VAT of infrastructure already included in the nontaxable subtracted value of land use rights. If the land price at the time of Vietnam Law & Legal Forum 19 transfer cannot be determined, the land price allowed to be subtracted when determining VAT is the land price set by the provincial-level People’s Committee at the time of signing the transfer contract. Example 26: In July 2011, Company A received the right to use a land plot of 200 m2 transferred from Mr. B at the price of VND 6 billion. Company A has signed a land use right transfer contract and has it notarized according to the land law and has sufficient documents evidencing the payment of VND 6 billion to Mr. B. Company A has built no work in this land plot. In September 2012, Company A transfers the land use rights purchased from Mr. B at the price of VND 9 billion, the land price allowed to be subtracted when determining VAT is the transfer price (VND 6 billion). Example 27: In November 2011, Limited Liability Company A received the right to use a land plot of 300 m2 transferred from Mr. B at the price of VND 10 billion but documents evidencing the land price at the time of transfer were unavailable. In April 2012, Company A transfers this land plot at the price of VND 14 billion, the land price allowed to be subtracted when determining VAT is the land price set by the concerned provinciallevel People’s Committee at the time of transfer (November 2011). Example 28: In September 2011, Company B purchased from real estate trading A a 2,000-m2 land plot with infrastructure at a total price of VND 62 billion (the non-taxable land price is VND 40 billion, with VND 20 million per square meter). Company A shall write in the invoice: - VAT-exclusive transfer price: VND 60 billion - Non-taxable land price: VND 40 billion - VAT on infrastructure: VND 2 billion - Total payment price: VND 62 billion Company A shall declare the payable VAT amount as follows: Payable VAT amount = Output VAT amount - Creditable input VAT amount Supposing that the input VAT of VND 1.5 billion on infrastructure construction is eligible for credit: The payable VAT amount = VND 2 billion - 1.5 billion = 0.5 billion Company B further builds infrastructure and 10 villas (each with a floor area of 200 m2) for sale. The total input VAT for construction of these villas is VND 3 billion. Vietnam Law & Legal Forum 20 On April 1, 2012, Company B signs a contract to sell 1 villa to customer C at the VAT-exclusive price of VND 10 billion. The land price to be subtracted when determining the taxed price of the sold villa is: - The value of land use rights for the villa (exclusive of the value of infrastructure) at the time of receiving land use rights transferred from Company A: (VND 20 million x 200 m2 = VND 4 billion). - The value of infrastructure allocated to a villa: (VND 20 billion : 200 m2) x 200 m2 = VND 2 billion - The value of land use rights (inclusive of the value of infrastructure) at the time of receiving land use rights transferred from Company A to be subtracted when determining the taxed price of the sold villas is VND 6 billion. Company B shall write in the invoice: - Transfer price of a villa: VND 10 billion - Non-taxable land price allowed to be subtracted: VND 6 billion - VAT amount: VND 0.4 billion [(VND 10 billion - 6 billion) x 10%] - Total payment price: VND 10.4 billion Supposing that Company B sold out 10 villas in the month. It will declare and pay a payable VAT amount = output VAT amount - creditable input VAT = VND 0.4 billion x 10 villas - VND 3 billion = VND 1 billion. The VAT amount of VND 2 billion on the value of infrastructure indicated on the invoice on the receipt of land use rights transferred from Company A is not allowed for declaration and credit. a.5/ For real estate establishments doing business in the form of buildtransfer (BT) and exchanging works for land, the land price to be subtracted when determining VAT is the price set under law at the time of signing BT contracts. b/ In case of infrastructure construction and commercial operation, or construction of houses for sale, transfer or lease, the taxed price is the sum earned according to the project implementation schedule or payment schedule indicated in contracts. 10. For goods and service sale and purchase agency and brokerage activities, remunerated or commissioned import or export entrustment activities, the taxed price is VAT-exclusive remunerations or commissions earned from these activities. Vietnam Law & Legal Forum 21 11. For goods and services with payment vouchers showing VAT-inclusive payment prices, such as stamps, freight or fare tickets or lottery tickets, their VAT-exclusive prices shall be determined as follows: VAT-exclusive price = Payment price (ticket or stamp price) 1 + VAT rate applicable to the goods or service (%) 12. For electricity supplied by a hydropower plant being a dependent costaccounting unit of the Electricity of Vietnam Group, the taxed price for determining the payable VAT amount in the locality where such plant is located is equal to 60% of the VAT-exclusive average commercial electricity sale price in the previous year. In case the average commercial electricity sale price in the previous year cannot be determined, a price for temporary VAT calculation announced by the Group may apply but must not be lower than the price of the previous year. When the average commercial electricity sale price in the previous year can be determined, declaration for difference adjustment shall be made in the declaration period of the month when the official price is available. The average commercial electricity sale price in a year must be determined before March 31 of the following year. 13. For casino, prized video game or betting game services, the taxed price is the excise tax-inclusive sums of money earned from these activities minus prizes paid to customers. The taxed price is calculated according to the following formula: Taxed price = Earned sum of money 1 + tax rate Example 29: In a tax period, a casino service establishment records the following figures: - Cash amount collected from customers for token exchange at counters before playing games: VND 43 billion. - Cash amount paid to customers for tokens returned after playing games: VND 10 billion. Cash amount actually collected by the establishment: VND 43 billion VND 10 billion = VND 33 billion. The cash amount of VND 33 billion is the establishment’s turnover inclusive of VAT and excise tax. The taxed price is calculated as follows: Vietnam Law & Legal Forum 22 Taxed price = VND 33 billion = 1 + 10% VND 30 billion 14. For transportation, loading and unloading, the taxed price is VATexclusive freight or loading and unloading charge rate, regardless of whether establishments directly undertake the transportation, loading and unloading or outsource such services. 15. For tourist services in the form of tours under contracts signed with tourists at a package price (inclusive of meals, accommodation and transportation, this package price is regarded as the VAT-inclusive price. The taxed price is determined according to the following formula: Taxed price = Package price 1 + tax rate In case the package price covers also inbound and outbound air fares, expenses for meals, accommodation and sight-seeing and some other expenses incurred abroad (provided that they are accompanied with lawful vouchers), the sum of money collected from tourists to cover these expenses may be subtracted from the taxed price (turnover). Example 30: Ho Chi Minh City Tourist Company performs a package tour contract with Thailand for 50 tourists for five days in Vietnam with a total payment of USD 32,000. The Vietnamese side has to pay for airfares, meals, accommodation, and sight-seeing tours under the agreed program, of which the airfares from Thailand to Vietnam and vice versa cost USD 10,000. The applicable exchange rate is USD 1 = VND 20,000. The taxed price under this contract is determined as follows: + Turnover liable to VAT is: (USD 32,000 - USD 10,000) x VND 20,000 = VND 440,000,000 + The taxed price is: VND 440,000,000 1 + 10% = VND 400,000,000 Example 31: Hanoi Tourist Company performs a contract for taking tourists from Vietnam to China on a five-day tour at the package price of USD 400/person. If it has to pay a Chinese tourist company USD 300/person, its taxed price (turnover) is USD 100/person (USD 400 - USD 300). Vietnam Law & Legal Forum 23 16. For pawning service, the taxed price is the amount to be collected from this service, including the interest receivable from pawn loans and other proceeds from the sale of pawned articles (if any). The taxed price is determined according to the following formula: Taxed price Receivable amount = 1 + tax rate Example 32: A pawning company generates in the tax period a pawning turnover of VND 110 million. + The taxed price is determined as follows: VND 110 million 1 + 10% = VND 100 million 17. For a VAT-liable book sold at the distribution price (cover price) under the Publication Law, this sale price shall be determined as the VATinclusive price for calculating VAT and turnover of the seller. For a book sold at a price other than the cover price, VAT shall be calculated on the basis of the actual sale price. 18. For printing activities, the taxed price is the printing cost. If a printing establishment performs printing contracts with payment prices covering also printing and paper costs, the taxed price also includes the paper cost. 19. For services of assessment agency, agency for indemnity consideration, agency for third-party claim and agency for handling of wholly compensated goods for remunerations or commissions, the taxed price is the earned VAT-exclusive remuneration or commission amount (not yet subtracted with any expenses) collected by insurance enterprises. 20. The taxed price of services provided both in Vietnam and overseas is the value of services provided in Vietnam as indicated in the service provision contract. If the value of services provided in Vietnam is not separately indicated in the contract, the taxed price shall be determined according to the ratio (%) of expenses arising in Vietnam to total expenses. Example 33: Joint-stock Company B provides to Center X a seminar and study tour service which is divided into 2 parts: holding a seminar in Vietnam and organizing a study tour in Thailand. The whole value of the service under the signed contract is VND 500 million, of which the value of the service of organizing a seminar in Vietnam is VND 150 million, air fares from Thailand to Vietnam (and vice versa) and expenses for meals, accommodation and the study tour in Vietnam under the program is VND 350 million. Vietnam Law & Legal Forum 24 The taxed price shall be determined to be equal to (=) the VAT-inclusive value of the service provided in Vietnam (1+VAT rate). Specifically, the taxed price is determined as follows: VND 150 million 1 + 10% = VND 136,363,640 Example 34: Company D provides the service of consultancy, exploration and making a feasibility study report for a Lao-based investment project of Company X. The total VAT-exclusive turnover earned by Company D is VND 5 billion. The contract signed between the two enterprises does not indicate the turnover earned in Vietnam and that earned in Laos. Company D calculates expenses arising in Laos (survey and exploration expenses) as VND 1.5 billion and expenses arising in Vietnam (summarization and making of the report) as VND 2.5 billion. Taxed price = VND 5 billion x VND 2.5 billion VND 2.5 billion + 1.5 billion 21. For cases of purchasing the services specified in Clause 5, Article 3 of this Circular, the taxed price is the VAT-exclusive payment price indicated in the service sale/purchase contract. 22. The taxed price of goods and services specified in Clauses 1 thru 21 of this Article covers also revenues and surcharges collected by business establishments in addition to goods and service prices. In case a business establishment offers a price or commercial discount for customers, the taxed price is the reduced or discounted price. In case the price reduction or commercial discount is based on the quantity and sales of goods or services, the reduced or discounted amount of goods sold shall be adjusted on the goods and service sale invoice upon the last purchase or in the subsequent period. In case the reduced or discounted amount is recorded when the price reduction or discount program (period) ends, the establishment may issue an adjustment invoice, enclosed with a list of serial numbers of invoices which need to be adjusted, the adjusted amounts and tax amounts. Based on the adjustment invoice, the seller and buyer shall declare adjustments to sale and purchase turnovers and input and output tax. Taxed prices are calculated in Vietnam dong. In case a taxpayer has foreign-currency turnover, such turnover must be converted into Vietnam dong at the average inter-bank exchange rate announced by the State Bank of Vietnam at the time of turnover generation. Article 8. Time of VAT determination Vietnam Law & Legal Forum 25 1. For sale of goods, it is the time of transfer of the right to own or use goods to the purchaser, regardless of whether money has been collected. 2. For provision of services, it is the time of completing service provision or the time of making a service provision invoice, regardless of whether money has been collected. 3. For supply of electricity and clean water, it is the date of recording water or electricity meter readings for water or electricity billing. 4. For real estate trading, building of infrastructure or houses for sale, transfer or lease, it is the time of collection of money according to the project implementation or payment collection schedule stated in the contract. Based on the collected sum of money, the business establishment shall declare the output VAT amount arising in the period. 5. For construction and installation, it is the time of takeover test and handover of the completed work, work item, construction or installation volumes, regardless of whether money has been collected. 6. For imported goods, it is the time of registration of the customs declaration. Article 9. Tax rate of 0% 1. The 0% tax rate applies to exported goods and services; work construction and installation for export processing enterprises; international transportation; goods and services not liable to VAT upon exportation, except cases ineligible for the 0% tax rate under Clause 3 of this Article. a/ Exported goods include: - Goods exported abroad, including entrusted export; - Goods sold into non-tariff zones under the Prime Minister’s decisions; goods sold to duty-free shops; - Cases regarded as export under law: + Intermediary processed goods under the commercial law regarding international goods trading and goods trading and processing agency with foreign parties. + On-spot exports under law. + Goods exported for sale at overseas fairs and exhibitions. b/ Exported services include services provided directly to overseas organizations or individuals or organizations or individuals in non-tariff zones. Vietnam Law & Legal Forum 26 Overseas organizations are foreign organizations without permanent establishments in Vietnam and are not VAT payers in Vietnam; Overseas individuals are non-resident foreigners and overseas Vietnamese not present in Vietnam during the provision of services; Organizations and individuals in non-tariff zones are those with business registration certificates and other cases specified by the Prime Minister. c/ International transportation provided in this Clause covers transportation of passengers, luggage and cargo on international routes from Vietnam to overseas or vice versa or from an overseas place to another, regardless of having means of transport or not. In case a contract on international transportation covers domestic routes, international transportation also covers such domestic routes. Example 35: Transportation Company X in Vietnam, which has ships for international transportation, transports cargo from Singapore to South Korea. Revenues from such transportation are those from international transportation. d/ Aviation and maritime services provided directly to overseas organizations or through agents, including: Aviation services eligible for the 0% tax rate: provision of in-flight meals; takeoff and landing; apron; aircraft security and protection; security screening of passengers, luggage and cargo; luggage conveyors in airport terminals; ground technical and commercial services; aircraft protection; aircraft pushback and towing; aircraft piloting; aerobridge lease; flight operations; transportation of flight crews, stewards and passengers within aprons; cargo loading and tally; passenger service for international flights from Vietnamese airports. Maritime services eligible for the 0% tax rate: seagoing ship towing; maritime piloting; maritime salvage; piers and floating wharves; loading and unloading; mooring and unmooring; opening and closing of hatch covers; cargo hold cleaning; tally and forwarding; and registration. e/ Other goods and services: - Work construction and installation for export processing enterprises; - Goods and services not liable to VAT upon exportation, except cases ineligible for the 0% tax rate provided in Clause 3 of this Article; - Repair of aircraft and seagoing ships for foreign organizations and individuals. 2. Conditions on application of the 0% tax rate: Vietnam Law & Legal Forum 27 a/ For exported goods: - Having a contract on sale or processing of exported goods; or contract on entrusted export; - Having vouchers of via-bank payment for exported goods, and other documents under law; - Having customs declarations under Clause 2, Article 16 of this Circular. b/ For exported services: - Having a contract on service provision with an overseas organization or individual or an organization or individual in a non-tariff zone; - Having documents of via-bank payment for exported services and other documents under law; - Having a commitment of the overseas organization that it neither has a permanent establishment in Vietnam nor is a VAT payer in Vietnam; a commitment of the overseas person that he/she is a non-resident foreigner or overseas Vietnamese and stays outside Vietnam during the service provision. Particularly for aircraft and seagoing ship repair services provided to foreign organizations and individuals, to be eligible for the tax rate of 0%, aircraft and seagoing ships must, apart from meeting the above conditions on contract and payment documents, go through import procedures upon their entry into Vietnam and export procedures upon completion of repair. c/ For international transportation: - Having a lawful contract on carriage of passengers, luggage and cargo between the carrier and carriage lessee along international routes from Vietnam to abroad or vice versa or from one to another overseas location. For carriage of passengers, the carriage contract is the ticket. International transportation businesses shall comply with regulations on transportation. - Having documents on via-bank payment or other modes of payment regarded as via-bank payment. Having documents on direct payment, for carriage of individual passengers. d/ For aviation and maritime services: d.1/ The 0% tax rate applies to aviation services at international airports and airfields and international air cargo terminals which satisfy the following conditions: - Having a service provision contract with, or a service provision request by, an overseas organization or a foreign airline; Vietnam Law & Legal Forum 28 - Having documents on via-bank payment or other modes of payment regarded as via-bank payment. For provision of services to an overseasbased organization or a foreign airline on an irregular, unscheduled and uncontractual basis, having documents on direct payment of such organization or airline. The above conditions on contracts and payment documents do not apply to the provision of services to passengers on international flights departing from Vietnamese airports. d.2/ The 0% tax rate applies to maritime services at seaports which satisfy the following conditions: - Having a service provision contract with, or a service provision request by, an overseas organization or a shipping agent; - Having vouchers of via-bank payment of an overseas organization or a shipping agent, or other modes of payment regarded as via-bank payment. 3. Cases ineligible for the 0% tax rate: - Offshore re-insurance; offshore transfer of technologies or intellectual property rights; offshore capital transfer, credit extension or securities investment; derivative financial services; outbound post and telecommunications services (including also post and telecommunications services provided to organizations and individuals in non-tariff zones and provision of prepaid mobile phone cards with codes and par value overseas or in non-tariff zones); exported products being unprocessed natural resources or minerals; goods and services provided to individuals without business registration in non-tariff zones, except other cases provided by the Prime Minister; - Petrol and oil sold domestically to automobiles of businesses in non-tariff zones; - Automobiles sold to organizations and individuals in non-tariff zones; - Services provided by businesses to organizations and individuals in nontariff zones, including lease of housing, workshops, halls, offices, hotels and warehouses and storage yards; transportation of employees; catering services (except the provision of industrial meals and catering services in non-tariff zones); - The following services provided in Vietnam to overseas organizations and individuals are ineligible for the 0% tax rate: + Sports competitions, art, cultural and recreational performances, conferences, hotels, training, advertising and travel; + Online payment, digitalized service. Vietnam Law & Legal Forum 29 The cases ineligible for the 0% tax rate provided in this Clause are subject to the corresponding tax rates applicable to goods and services sold or provided domestically. Article 10. Tax rate of 5% 1. Clean water for production and daily life, excluding bottled drinking water and other beverages subject to the tax rate of 10%. 2. Fertilizers; ores for fertilizer production; pesticides and plant and animal growth stimulants. a/ Fertilizers are organic and inorganic fertilizers such as phosphorus fertilizer, nitrate fertilizer (urea), NPK, mixed nitrate, phosphate, potassium; vermicompost and other fertilizers. b/ Ores for fertilizer production are those used as materials for fertilizer production such as apatite for phosphorus fertilizer production, humus for vermicompost production. c/ Pesticides and animal and plant growth stimulants. 3. Feeds for cattle, poultry and other domestic animals, including processed and unprocessed products, such as bran, offal, assorted oil cakes, fish meal, bone meal, shrimp meal and other feeds for cattle, poultry and domestic animals. 4. Services of digging, embanking and dredging canals, ditches, ponds and lakes for agricultural production; cultivating and tending plants and preventing and eliminating pests; and preliminarily processing and preserving agricultural products (except dredging intra-field canals and ditches specified at Clause 3, Article 4 of this Circular). Services of preliminary processing and preservation of agricultural products, including sun-drying, heat-drying, peeling, pitting, slicing, grinding, freezing, salting and other ordinary methods of preservation. 5. Cultivation, husbandry, aquatic and marine products which are unprocessed or preliminarily processed by cleaning, sun-drying, heatdrying, peeling, pitting, slicing, grinding, freezing, salting or other ordinary methods of preservation at the trading stage. Unprocessed cultivation products guided at this Point include also paddy, rice, maize, potato, cassava and wheat. 6. Preliminarily processed latex in the forms of crepe, sheet, strip or granule; preliminarily processed pine resin; nets, net ropes and cords for weaving fishing nets, including fishing nets, assorted cords and ropes for exclusive use in weaving fishing nets, regardless of their production materials. Vietnam Law & Legal Forum 30 7. Fresh and raw foods; forest products, except timber, bamboo shoots and the products specified in Clause 1, Article 4 of this Circular, not yet processed at the trading stage. Fresh and raw foods are those which have been neither cooked nor processed into other products, but have only been preliminarily processed by cleaning, peeling, slicing, freezing or sun-drying, and still remain fresh and raw, such as cattle and poultry meat, shrimps, crabs, fishes, and other aquatic and marine products. Seasoned food is subject to the 10% tax rate. Unprocessed forest products are forest products exploited from natural forests and of the groups of bamboo and rattan of various kinds, mushrooms, Jew’s ear fungus; roots, leaves, flowers, medicinal plants, plant resins, and other forest products. Example 36: Limited Liability Company A produces seasoned fresh bo catfish (pseudobagrus) by the process: catching live fish; slicing fish into fillet; seasoning fillets with sugar, salt and solpitol; packing and freezing. In this case, the seasoned fresh bo catfish is ineligible for the 5% tax rate, but is subject to the 10% tax rate. 8. Sugar and by-products in sugar production, including molasses, bagasse, dregs. 9. Products made of jute, rush, bamboo, rattan, leaves, straw, coir, coconut shells, water hyacinth, and other handicraft products made of raw materials from agricultural production are those made of or processed from jute, rush, bamboo, rattan and leaves as main raw materials, such as jute carpets, jute yarns, jute bags, coir carpets, jute or rush mats, brooms, ropes and strings made of bamboo or coir; curtains and blinds made of bamboo of various kinds, bamboo brooms, conical hats; bamboo chopsticks; preliminarily processed cotton; newsprint paper. 10. Specialized machinery and equipment for agricultural production, including plowing, harrowing, seedling-transplanting and seed-sowing machines, rice threshers, harvesters, combined harvester-threshers, farm produce harvesters, pesticide sprayers or spraying machines. 11. Medical equipment and instruments, including specialized machinery and instruments for medical use, such as scanners and radiography machines of all kinds for medical examination and treatment; devices and instruments used exclusively in surgery and wound treatment; ambulances; blood-pressure, cardiac and vascular meters; blood transfusion instruments; syringes and needles; contraceptive devices and other specialized medical equipment; Vietnam Law & Legal Forum 31 Medical cotton, bandages, gauzes and medical hygienic bandages; preventive and curative medicaments, including finished medicaments, materials for manufacture of medicaments other than functional food; vaccines, medical biologicals, distilled water for preparation of injections and transfusion fluids; chemical supplies for testing and germicides for medical use; surgical caps, clothes, masks, cloths, gloves and boots, shoe covers and tissues and gloves for medical use. 12. Teaching and learning aids, including models, drawings, writing boards, chalks, rulers, compasses and other equipment and devices used for teaching and scientific research and experiment. 13. Cultural, exhibition, physical training and sports activities; art performances; film production; film import, distribution and screening. a/ Cultural, exhibition, physical training and sports activities, except revenues such as sales of goods, rents of grounds and fields or booths at trade fairs or exhibitions. b/ Art performance activities, such as tuong (classical drama), cheo (traditional operetta), cai luong (reformed drama), singing, dancing, music, drama, circus; other art performances and services of organizing art performances of theatres or tuong, cheo, cai luong, singing, dancing, music, drama or circus troupes licensed by competent state agencies. c/ Film production; film import, distribution and screening, except for the products specified in Clause 15, Article 4 of this Circular. 14. Children’s toys; books of various kinds, excluding those not liable to VAT specified in Clause 15, Article 4 of this Circular. 15. Scientific and technological services are activities serving scientific research and technological development; activities related to intellectual property; services on information, popularization and application of scientific and technological knowledge and practical experience under scientific and technological service contracts provided in the Law on Science and Technology, excluding games online and entertainment services on the Internet. Article 11. Tax rate of 10% The 10% tax rate applies to goods and services not specified in Articles 4, 9 and 10 of this Circular. The VAT rates specified in Articles 10 and 11 apply uniformly to each type of goods or services at the stages of importation, manufacture, processing and trading. Vietnam Law & Legal Forum 32 Example 37: If garments are subject to the tax rate of 10%, they are subject to this tax rate at all the stages of importation, production, processing and trading. Scraps and defective products recovered for recycling and reuse, when being sold, are subject to the VAT rate applicable to corresponding goods items. Example 38: Fish remains, which are waste recovered from fish sauce making, are subject to the tax rate applicable to fish remains upon sale. If fish remains are used to produce animal feeds or fertilizers or as materials for fertilizer production, they are subject to the 5% tax rate upon sale. An establishment that trades in different goods or provides different services subject to different VAT rates shall declare VAT at the VAT rate applicable to each type of goods or services. If unable to do so, it shall calculate and pay tax at the highest tax rate applicable to the goods or services it manufactures, trades in or provides. In the course of implementation, if there arises any case involving the application of a VAT rate according to the Preferential Import Tariff which is unconformable to this Circular, this Circular applies. For cases involving the application of different VAT rates to the same type of imported and domestic goods, local tax offices and customs offices shall report them to the Ministry of Finance for timely guidance on uniform application. Section 2 TAX CALCULATION METHODS Article 12. Tax credit method 1. The tax credit method applies to businesses that fully observe accounting, invoice and document regimes under the law on accounting, invoices and documents, and register to pay tax by the tax credit method, except those applying the method of tax calculation directly based on added value specified in Article 13 of this Circular. 2. Determination of payable VAT amount: Payable amount VAT = Output VAT amount - Creditable VAT amount input In which: a/ The output VAT amount equals the total VAT amount of goods or services indicated on a value-added invoice. Vietnam Law & Legal Forum 33 The VAT amount indicated on a value-added invoice equals the taxed price of the taxable goods or service sold multiplied by (x) the VAT rate applicable to such goods or service. In case of using vouchers indicating a VAT-inclusive price, the output VAT amount shall be determined to be equal to this price minus (-) the taxed price specified in Clause 11, Article 7 of this Circular. Businesses paying VAT calculated by the tax credit method shall, when selling goods or providing services, calculate and pay VAT on the goods sold or services provided. On invoices issued for the sale of goods or provision of services, businesses shall write VAT-exclusive sale prices, VAT amounts and total amounts payable by purchasers. If an invoice only indicates the payment price (except cases in which special-type documents may be used) without indicating the VAT-exclusive price and VAT amount, the VAT amount on the goods or service shall be calculated based on the payment price indicated on the invoice or document. Example 39: An enterprise sells iron and steel at a VAT-exclusive price of VND 11,000,000/ton of f6 iron rods; the 10% VAT amount is VND 1,100,000/ton, but on some of its sale invoices, only the sale price of VND 12,100,000/ton is indicated, the VAT amount calculated on the basis of sales shall be determined as follows: VND 12,100,000/ton x 10% = VND 1,210,000/ton, instead of calculation based on the VAT-exclusive price of VND 11,000,000/ton. Businesses shall observe the accounting, invoice and document regimes under the law on accounting, invoices and documents. For wrong VAT rates indicated on invoices which are not yet adjusted by businesses themselves but are detected through inspection by tax offices, they shall be handled as follows: For businesses selling goods or providing services: If the VAT rate indicated on an invoice is higher than that prescribed in legal documents on VAT, VAT shall be declared and paid at the rate indicated on the invoice. If the VAT rate indicated on the invoice is lower than that prescribed in legal documents on VAT, VAT shall be declared and paid at the rate prescribed in legal documents on VAT. b/ The input VAT amount equals (=) the total VAT amount indicated on the value-added invoice for purchased goods or services (including also fixed assets) used for the production of and trading in VAT-liable goods or services or the VAT amount indicated on the duty payment vouchers for imported goods or the voucher of VAT payment for foreign parties under the Finance Ministry’s guidance applicable to foreign organizations Vietnam Law & Legal Forum 34 without the Vietnamese legal entity status and foreigners doing business or earning incomes in Vietnam. If purchased goods or services are those for which special-type documents indicating VAT-inclusive payment prices are used, businesses may base themselves on these VAT-inclusive prices and the calculation method specified in Clause 11, Article 7 of this Circular to determine the VATexclusive price and input VAT amount. The creditable input VAT amount shall be determined based on the VAT credit principles provided in Articles 14, 15, 16 and 17 of this Circular. Example 40: In a tax period, Company A made payment for input services of a special type eligible for tax credit: The total payment price is VND 110 million (inclusive of VAT). This service is subject to the tax rate of 10%. The creditable input VAT amount shall be calculated as follows: VND 110 million 1 + 10% x 10% = VND 10 million The VAT-exclusive price is VND 100 million and the VAT amount is VND 10 million. Wrong VAT rates indicated on invoices which are not yet adjusted by businesses themselves but are detected through inspection by tax offices shall be handled as follows: For businesses purchasing goods or services: If the VAT rate indicated on an invoice is higher than that prescribed in legal documents on VAT, the input VAT shall be credited at the rate prescribed in these legal documents. If the seller is determined as having declared and paid tax at the rate indicated on the invoice, the input VAT may be credited at the rate indicated on the invoice, provided certification by the tax office directly managing the seller is available. If the VAT rate indicated on an invoice is lower than that prescribed in legal documents on VAT, the input VAT shall be credited at the rate indicated on the invoice. Article 13. Method of VAT calculation directly based on added value 1. The method of VAT calculation directly based on added value applies to: a/ Business individuals and households that fail to observe or fail to fully observe the accounting, invoice and document regimes prescribed by law. b/ Foreign organizations and individuals that conduct business in Vietnam not under the Investment Law and other organizations (including also Vietnam Law & Legal Forum 35 economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, people’s armed forces units, non-business organizations and other organizations) that fail to observe or fail to fully observe the accounting, invoice and document regimes prescribed by law, except foreign organizations and individuals providing goods and services for oil and gas search, exploration, development and exploitation. For foreign organizations and individuals providing goods and services for oil and gas search, exploration, development and exploitation, Vietnamese parties shall credit and pay taxes for them at the rates set by the Ministry of Finance. If foreign organizations and individuals register, declare and pay tax by the tax credit method, the tax amounts already paid at the rates set by the Ministry of Finance may be deducted from the payable tax amounts. c/ Entities trading in gold, silver and gems. Businesses engaged in both trading in and fashioning gold, silver and gems are subject to the method of tax calculation directly based on added value. 2. Determination of payable VAT amounts The payable VAT amount calculated directly based on added value equals the added value of the taxable goods or service multiplied by (x) the VAT rate applicable to that goods or service. a/ The added value of a goods or service equals the payment price of the sold goods or service minus (-) the payment price of the corresponding purchased goods or service. The payment price of a sold goods or service is the actual sale price indicated in the goods or service sale invoice, which is inclusive of VAT and surcharges and charges enjoyable by the seller, regardless of whether the money has been collected. The payment price of a purchased goods or service equals the VATinclusive value of the purchased or imported goods or service used for the production of or trading in the corresponding VAT-liable goods or service sold. For some business lines, added value shall be determined as follows: - For production and business activities, it is the difference between sales and costs of purchased supplies, goods and services used in production and business. When businesses cannot account the costs of purchased supplies, goods and services corresponding to the sales of goods, the added value shall be determined as follows: Vietnam Law & Legal Forum 36 The cost of goods sold equals (=) sales left at the beginning of the period plus (+) purchase costs in the period minus (-) sales left at the end of the period. Example 41: Establishment A produces wood articles. In a month, it sells 150 products and earns total sales of VND 25 million. The value of supplies and materials purchased for the production of these 150 products is VND 19 million, including: + Principal raw material (timber): VND 14 million. + Other materials and services purchased from outside: VND 5 million. The applicable VAT rate is 10%. The VAT amount payable by establishment A shall be calculated as follows: + The added value of the sold products: VND 25 million - VND 19 million = VND 6 million. + The payable VAT amount: VND 6 million x 10% = VND 0.6 million. - For construction and installation, it is the difference between amounts earned from the construction and installation of works or work items minus (-) costs of materials and supplies, power, transportation and services purchased from outside, and other expenses for the construction and installation of works or work items. - For transportation activities, it is the difference between collected freight, loading and unloading charges minus (-) costs of petrol and oil and spare parts and other expenses for transportation activities. - For catering activities, it is the difference between amounts earned from the sale of foods and drinks, service charges and other revenues minus (-) costs of goods and services purchased for the catering business. - For trading in gold, silver and gems, it is the difference between sales of gold, silver and gems minus (-) costs of sold gold, silver and gems. - Businesses subject to VAT calculation by the tax credit method and trading in gold, silver and gems subject to the method of tax calculation directly based on added value shall separately account input VAT amounts for declaration of VAT amounts payable for different goods and services subject to different tax calculation methods. If they cannot separately account input VAT, the creditable input VAT amount shall be determined according to the proportion of the sales of goods and services subject to VAT calculated by the tax credit method to the total sales in the period, of which sales of VAT-liable goods and Vietnam Law & Legal Forum 37 services are the total sales of goods and services subject to VAT calculated by the tax credit method; total sales of goods and services in the period include sales of VAT-liable goods and services, sales of goods and services not liable to VAT and the difference between the sale and purchase prices of the gold, silver and gem trading (excluding negative (-) difference). - For other business activities, it is the difference between amounts earned from business activities minus (-) costs of goods and services purchased for the performance of such business activities. - Businesses paying VAT calculated directly on the basis of added value may not include the value of assets purchased from outside, invested or constructed for use as fixed assets in the costs of purchased goods and services for calculating added value. - In case there arises in a tax period a negative (-) added value of gold, silver and gems, it may be cleared against the positive (+) added value of gold, silver and gems. When there arises no positive (+) added value or such value is not enough to offset the negative (-) added value, it may be transferred for deduction from the added value of the next period in the year. Closing a calendar year, a negative (-) added value may not be transferred to the following year. Businesses shall declare VAT according to a set form. b/ For businesses (other than those applying the tax credit method and business households and individuals) that sell goods or provide services and have sufficient sale invoices under regulations or satisfy all conditions for determining exact sales of goods or services such as contracts and payment vouchers but have insufficient invoices on purchase of input goods or services, the added value shall be determined to equal sales multiplied by (x) the ratio (%) of the added value to the sales. The ratio (%) of the added value to sales as a basis for determining the added value is specified as follows: - Commercial activities (goods distribution and supply): 10%. - Services and construction (except construction with contracted supply of materials): 50%. - Production, transportation, services associated with supply of goods, construction with contracted supply of materials: 30%. c/ For business activities and business individuals and households that fail to observe or fully observe the accounting, invoice and voucher regimes prescribed by law, VAT shall be paid at a rate (%) prescribed by the Ministry of Finance. Vietnam Law & Legal Forum 38 Chapter III TAX CREDIT AND REFUND Section 1 TAX CREDIT Article 14. Principles of input value-added tax credit 1. Input VAT on goods or services used for the production of and trading in VAT-liable goods and services may be wholly credited, including also the uncompensated input value-added tax on lost VAT-liable goods. For goods exposed to natural loss in transportation and filling due to their physic and chemical properties such as petrol, oil, etc., the input VAT amount on the actual volume of goods lost naturally, which must not exceed the prescribed loss limit, may be declared and credited. The input VAT amount on the volume of lost goods exceeding the prescribed limit may not be credited and refunded. 2. For goods or services used for the production of and trading in both goods or services liable and not liable to VAT, only the input VAT amount on goods or services used for the production of and trading in VAT-liable goods or services is creditable. Businesses shall separately account creditable and non-creditable VAT amounts. If it is impossible to do so, input VAT shall be credited according to the ratio (%) of VAT-liable turnover to total turnover of sold goods or services. Traders of goods or services liable and not liable to VAT shall monthly allocate VAT amounts on purchased VAT-creditable goods or services for the month on a temporary basis. At the year end, they shall calculate the allocation of creditable VAT amounts for the year for declaration of adjustment of input VAT amounts which have been credited temporarily by month. 3. Input VAT on fixed assets used for the production of and trading in both goods and services liable and not liable to VAT may be wholly credited. Input VAT on fixed assets in the following cases may not be credited but shall be included in the historical costs of these fixed assets: fixed assets exclusively used for the manufacture of weapons and military equipment used in defense and security; fixed assets, machinery and equipment of credit institutions and reinsurance, life insurance and securities businesses, hospitals and schools; civil aircraft and yachts not used for commercial transportation of cargo and passengers, tourist or hotel business. Input VAT on goods and services which form fixed assets of enterprises, such as canteens providing shift meals, mid-shift accommodations, free houses, locker rooms, parking lots, toilets and water tanks for laborers Vietnam Law & Legal Forum 39 working in production or business places, and houses and healthcare stations for laborers working in industrial parks, may be wholly credited. For fixed assets being passenger automobiles of 9 seats or less (excluding automobiles used for commercial transportation of cargo or passengers or for tourist or hotel business) and valued at more than VND 1.6 billion (exclusive of VAT), input VAT on the value in excess of VND 1.6 billion is not creditable. 4. Establishments engaged in agricultural or forestry production, aquaculture or fishing, organizing closed production processes, accounting their production and business results in a centralized manner, and using products at the stage of agricultural or forestry production; rearing and fishing aquatic or marine products as raw materials for further production and processing into VAT-liable products (including unprocessed agricultural, forest and aquatic products for export or processed products liable to VAT) may declare and credit input VAT on goods and services purchased for production and business at all stages of capital construction investment, production and processing. Businesses that have investment projects for further production and processing or make a written commitment to further producing VAT-liable products may declare and credit VAT right from the stage of capital construction. For input VAT arising in the capital construction stage, enterprises which have made tax declaration, credit and refund, but are later determined as ineligible for tax credit and refund, shall declare, adjust and return the credited and refunded VAT amounts. For businesses that fail to make tax adjustments and are detected through tax inspection and examination, tax offices shall retrospectively collect payable tax and refunded tax and impose fines under regulations. Businesses shall take full responsibility before law for tax credit and refund-related contents they have reported, committed and explained to tax offices. For establishments selling unprocessed or preliminarily processed agricultural, forest, aquatic or marine products not liable to VAT, the VAT amount on purchased goods and services may be credited according to the ratio (%) of sales of VAT-liable goods or services to total sales of goods or services. Example 42: Enterprise A investing in rubber farms has an arising input VAT amount on goods and services at the stage of capital construction. It does not have products as materials for further production and processing of VAT-liable products (including also unprocessed exports or processed products liable to VAT), but has a project to build a rubber latex mill (liable to VAT) and commits that cultivated products will be further Vietnam Law & Legal Forum 40 processed into VAT-liable products. In this case, the enterprise may credit all input VAT amounts. If the enterprise sells rubber latex, which is not liable to VAT, it may not credit tax. If the enterprise uses part of its exploited rubber latex for the production VAT-liable products while selling the other part, input VAT shall be credited as follows: - Input VAT amount on fixed assets (rubber farm, processing mill, etc.): To be wholly credited (including also VAT amounts arising at the stage of capital construction). - Input VAT amount on goods and services: To be credited according to the ratio (%) of sales of VAT-liable goods and services to total sales of goods and services. 5. Input VAT on goods (including also goods purchased from outside or goods manufactured by enterprises themselves) used by enterprises as donations, gifts or presents or for sale promotion or advertising in various forms to serve the production of and trading in VAT-liable goods and services is creditable. 6. Input VAT on goods and services used for the production of or trading in goods and services not liable to VAT under Article 4 of this Circular may be included in the historical costs of fixed assets, the value of raw materials or business costs, except the following cases: a/ VAT on goods and services purchased by businesses for the production of or trading in goods and provision of services to foreign organizations and individuals or international organizations for provision of humanitarian aid or non-refundable aid specified in Clause 19, Article 4 of this Circular, may be wholly credited; b/ Input VAT on goods and services used in prospecting, exploring and developing oil and gas fields to the first day of exploitation or production may be wholly credited. 7. Input VAT arising in a month may be declared for credit immediately when the tax amount payable in that month is determined, regardless of whether relevant goods or services have been delivered for use or remain in stock. a/ If businesses detect some invoices not yet declared for input VAT credit, they may make additional declaration and credit. The time limit for additional declaration and credit is 6 (six) months from the month when Vietnam Law & Legal Forum 41 missing invoices are issued, except the case provided at Point b of this Clause. Example 43: Business A has one value-added invoice on purchase issued on March 10, 2012. In the tax declaration period of March 2012, its accountants failed to declare this invoice. Business A may make an additional tax declaration and credit no later than August 2012. b/ In case businesses fail to declare the VAT amount paid at the stage of importation (including also the VAT amount paid at the stage of importation with tax payment vouchers dated before March 1, 2012), the input VAT amount for the stage of investment without operation yet may be additionally declared and credited under the tax administration law. Example 44: Business B paid VAT at the importation stage according to the tax payment voucher of March 1, 2012. Due to its accountants’ mistakes, this voucher has not been declared in the VAT declarations of subsequent months. Business B may make declaration for additional credit of the VAT amount paid at the importation stage (according to the tax payment voucher) under the tax administration law. Example 45: Business Y paid VAT at the importation stage according to the tax payment voucher dated before March 1, 2012. Due to its accountants’ mistakes, this voucher had not been declared and was only detected on March 1, 2012. Business Y may make declaration for additional credit of the VAT amount paid at the importation stage (according to the tax payment voucher) under the tax administration law. c/ Businesses that have issued value-added invoices for sale of goods or provision of services and then detect VAT-related errors shall issue invoices for adjustment and supplementation. The time limit for businesses purchasing goods or services to make additional declaration and credit of VAT is counted from the time of issuing invoices for adjustment and supplementation. 8. Businesses may either account non-creditable input VAT amounts as expenses for enterprise income tax calculation or include them in the historical costs of fixed assets under law. 9. Corporations’ or groups’ offices that are not directly engaged in business operations and subsidiary administrative and non-business units such as hospitals, clinics, sanatoriums, institutes, training establishments, etc., which are not VAT payers, are not entitled to input VAT credit or refund for goods and services purchased for their operations. When these units also deal in VAT-liable goods and services, they shall separately register, declare and pay VAT for these operations. Vietnam Law & Legal Forum 42 Example 46: The office of Corporation A is not directly engaged in production and business activities and operates with funds contributed by subsidiary units. If it leases the unused space of its house (office building), it shall separately account, declare and pay VAT for the office lease. The input VAT on goods and services used for the operation of the Corporation’s office is neither credited nor refunded. 10. Input VAT on goods and services used for the provision of goods and services not subject to VAT declaration and payment under Article 5 of this Circular may be wholly credited. Example 47: Construction Joint-Stock Company X builds a work in Laos. Apart from materials and supplies exported to Laos for the construction, Company X has some other expenses arising in Vietnam also for the construction in Laos such as management expenses. If Company X has value-added invoices for these expenses (for value-added invoices valued at VND 20 million or higher, via-bank payment is required), it may declare and credit all input VAT amounts on these expenses. 11. Businesses may declare and credit VAT on goods and services purchased through authorization to other organizations or individuals and authorized organizations or individuals are named in the invoices on such purchase, including the following cases: a/ Insurance businesses that authorize insured parties to repair assets and pay insured parties with corresponding indemnities under insurance policies for the expenses for asset repair and supplies and spare parts with value-added invoices indicating insured parties’ names may declare and credit VAT amounts corresponding to the indemnities paid according to value-added invoices indicating insured parties’ names. In case indemnities paid by insurance businesses to insured parties are valued at VND 20 million or higher, via-bank payment is required. b/ Before establishing a business, its founders make a written authorization for an organization or a person to pay some expenses for such establishment and purchase of goods and supplies. The business may declare and credit input VAT according to invoices indicating the name of the authorized organization or person and shall pay that organization or person via bank for invoices valued at VND 20 million or higher. 12. For non-business individuals and organizations contributing assets as capital to limited liability or joint-stock companies, documents on contributed assets are written certifications of capital contribution and records of asset delivery and receipt. If contributed assets are brand-new, have not been used, and have lawful invoices accepted by the capital delivery and receipt council, the value of contributed capital is that Vietnam Law & Legal Forum 43 indicated in the invoices inclusive of VAT. The capital receiving party may declare and credit VAT amounts indicated in invoices on purchase of assets of capital contributing parties. 13. Business households that pay VAT by tax calculation directly based on added value and then change to pay tax by the tax credit method may credit VAT on purchased goods and services arising from the month of paying tax by the tax credit method. For goods and services purchased before the month of paying tax by the tax credit method, input VAT is not creditable. 14. Businesses are not entitled to input VAT credit when: - Value-added invoices are used in contravention of law such as valueadded invoices not indicating VAT amounts (except particular cases permitted for use of value-added invoices indicating VAT-inclusive payment prices); - Invoices do not indicate or incorrectly indicate one of such items as name, address and tax identification number of the seller, resulting in failure to identify the seller; - Invoices do not indicate or incorrectly indicate one of such items as name, address and tax identification number of the buyer, resulting in failure to identify the buyer (except the cases provided in Clause 11 of this Article); - Invoices or VAT payment vouchers are false, invoices are erased or issued without actual provision of goods or services; - Invoices indicate untrue values of the goods or services traded or exchanged. Article 15. Conditions for input VAT credit 1. Having lawful value-added invoices of purchased goods or services or vouchers of VAT payment at the importation stage or vouchers of VAT payment for foreign parties under the Finance Ministry’s guidance applicable to foreign organizations without the Vietnamese legal entity status and foreigners conducting business or earning incomes in Vietnam. 2. Having vouchers of via-bank payment for purchased goods and services (including also imported goods) valued at VND 20 million or higher, except cases in which the total invoiced value of purchased goods or services at a time is less than VND 20 million calculated at a VATinclusive price. a/ Voucher of via-bank payment means a document proving the money transfer from the buyer’s account to the seller’s account opened at payment service institutions by lawful modes of payment such as check, payment Vietnam Law & Legal Forum 44 order, payment collection, bank card, phone card (e-wallet) and other modes of payment under regulations (including also the case in which the buyer makes payment from its account to the seller’s account bearing the name of a private enterprise owner or from its account bearing the name of a private enterprise owner to the seller’s account, provided such account is registered with a tax office for transaction). Vouchers of the buyer’s deposit of cash into the seller’s account or vouchers of improper modes of payment under current law are ineligible for credit and refund of VAT on goods and services purchased at VND 20 million or higher. b/ Without via-bank payment vouchers, input VAT on purchased goods or services with an invoiced value of VND 20 million or more calculated at a VAT-inclusive price at a time is not creditable. Businesses shall declare these invoices in the section of goods and services ineligible for tax credit in the list of invoices and vouchers of purchased goods and services. c/ For goods or services valued at VND 20 million or more purchased on deferred or installment payment, businesses shall declare and credit input VAT based on goods or service purchase contracts, value-added invoices and via-bank payment vouchers of these goods or services, and at the same time write the payment time limit in the note section of the list of invoices and vouchers of purchased goods and services. If via-bank payment vouchers are not available yet as the payment under contracts is not due, businesses may still declare and credit input VAT. If via-bank payment vouchers are unavailable when the payment under contracts is due, businesses may not credit input VAT and shall declare and reduce input VAT amounts already credited for the value of goods without via-bank payment vouchers. If businesses have documents proving via-bank payment after having reduced the input VAT amount credited for the value of goods or services purchased without via-bank payment vouchers, they may make additional declaration. In case the deferred payment under contracts is overdue and businesses fail to make reductions under regulations but then fully have via-bank payment vouchers before tax offices announce decisions on inspection at their offices, businesses shall be sanctioned for violation of tax procedures if their failure to make reductions does not result in a deficit in payable tax amounts or an increase in refundable tax amounts. If their failure to make reductions results in a deficit in payable tax amounts or an increase in refundable tax amounts, businesses are subject to retrospective collection of payable tax amounts or refunded tax amounts and shall be sanctioned under the Tax Administration Law. Vietnam Law & Legal Forum 45 Example 48: In March 2012, Company A purchases a goods lot from Company B for its production and business. The total value of the purchase contract is VND 330 million (VAT-exclusive price of VND 300 million, 10% VAT rate of VND 30 million). As agreed under the contract, Company A will pay Company B in July 2012. In this case, Company A may temporarily declare an input VAT amount of VND 30 million in the declaration period of March 2012. When the payment is due in July 2012, Company A shall provide a voucher of viabank payment of VND 330 million. If it fails to do so, it shall declare a reduction of temporarily credited VAT amount (VND 30 million). When the payment is due in July 2012, if Company A can provide a viabank payment voucher but the sum of money indicated on this voucher is only VND 275 million (corresponding to a tax-exclusive price of VND 250 million and 10% VAT rate of VND 25 million), it may credit only a VAT amount of VND 25 million (corresponding to the amount paid via bank of VND 275 million) and, at the same time, shall reduce the creditable VAT amount (VND 5 million = VND 30 million - VND 25 million) of the declaration period of March 2012. In November 2012, Company A can provide vouchers of via-bank payment with a value of VND 55 million (corresponding a tax-exclusive price of VND 50 million and VAT amount of VND 5 million), it may make an additional declaration for credit of the VAT amount of VND 5 million corresponding to the via-bank payment value of VND 50 million. Example 49: In November 2012, the tax office issues a decision on VAT inspection at Limited Liability Company Z. The period to be inspected is 2011 and 5 months of 2012. At the time of inspection, Company Z cannot produce via-bank payment vouchers for some contracts on deferred payment which are due in 2011 and 5 months of 2012. The tax office does not approve Company Z’s declaration for VAT credit for invoices without via-bank payment vouchers. But in November and December 2012, Company Z can produce via-bank payment vouchers for invoices disapproved by the tax office for tax credit. The company may still make an additional declaration for VAT credit for these invoices in the VAT declarations of November and December 2012. d/ Cases regarded as via-bank payment for input VAT credit include: d.1/ For goods and services purchased by clearing their value against that of sold goods and services or by goods borrowing, which is specified in the contract, there must be a record of comparison of figures and certification by the two parties of such clearing or borrowing. In case of Vietnam Law & Legal Forum 46 debt clearing through a third party, there must be a record of debt clearing by the three (3) parties as a basis for tax credit. d.2/ For goods and services purchased by debt clearing such as money borrowing and lending or debt clearing through a third party, which is specified in the contract, there must be a borrowing and lending contract made in writing earlier and a voucher of money transfer from the lender’s account to the borrower’s, for a money loan, including also the case of clearing the value of purchased goods and services against the amount the seller supports the buyer or asks the buyer to make payment on its behalf. d.3/ In case goods and services purchased are paid for via bank by an authorized third party (including also the case in which the seller requests the buyer to make via-bank payment to a third party designated by the seller), the payment to the third party authorized or designated by the seller must be specified in a written contract and the third party must be a legal person or entity currently operating under law. In case after the above modes of payment are made and the remaining value of VND 20 million or more is paid in cash, tax may be credited only for via-bank payments with evidencing vouchers. When declaring input value-added invoices, businesses shall clearly write the modes of payment specified in contracts in the note section of the list of invoices and vouchers of purchased goods and services. e/ In case a goods or service valued at less than VND 20 million is purchased from a supplier several times on a day with a total purchase value of VND 20 million or more, VAT may be credited only for via-bank payments with evidencing vouchers. The supplier is a VAT payer with tax identification number and directly declaring and paying VAT. Article 16. Conditions for input tax credit and refund of exported goods and services To be eligible for VAT credit and refund, exported goods and services (except the cases provided in Article 17 of this Circular) must satisfy all the conditions and procedures provided in Clause 2, Article 9, and Clause 1, Article 15, of this Circular, specifically as follows: 1. Contracts on sale of goods, processing of goods (for cases of goods processing), or provision of services to foreign organizations or individuals. For export consignment, export consignment contracts and written records of the liquidation of export consignment contracts (if contracts have terminated) or written records of periodical comparison of liabilities between the export consignor and consignee, clearly stating the quantity and category of products, the value of goods already exported under consignment; the serial number and date of the export contract Vietnam Law & Legal Forum 47 signed between the export consignee and the foreign party; the serial number and date of, and the sum of money indicated on, the voucher of via-bank payment made by the export consignee to the foreign party; the serial number and date of, and the sum of money indicated on, the voucher of payment made by the export consignor to the export consignee; the serial number and date of the export consignee’s customs declaration for the exported goods. 2. Customs declaration of exported goods for which customs procedures have been cleared under the Ministry of Finance’s guidance on customs procedures; customs inspection and control; export duty and import duty and tax administration of exported and imported goods. To enjoy input VAT credit and refund, businesses exporting software products in the form of document, file or packaged database shall clear customs declaration procedures applicable to ordinary goods. Particularly for the following cases, customs declarations are not required: - Businesses that export services or software electronically. However, these businesses shall comply with all regulations on procedures of certification that the purchaser has received services or software exported electronically in accordance with the law on e-commerce. - Construction and installation of works for export processing enterprises. - Businesses that supply electricity, water, stationery and goods for daily operations of export processing enterprises, including food, foodstuff, consumer goods (including also labor safety clothing: trousers, blouses, caps, shoes, boots and gloves). 3. Exported goods and services subject to via-bank payment a/ Via-bank payment means the transfer of money from the importer’s account to the account bearing the exporter’s name opened at a bank according to the mode of payment agreed under the contract and the bank’s regulations. Payment voucher means the credit note of the exporter’s bank of the amount received from the importer’s bank account. In case of deferred payment, the agreement thereon must be stated in the export contract, and when payment is due, the business must have a via-bank payment voucher. In case of export consignment, there must be a voucher of via-bank payment made by the foreign party to the consignee and the export consignee shall make via-bank payment for exports to the consignor. b/ The following cases of payment are also regarded as via-bank payment: Vietnam Law & Legal Forum 48 b.1/ Payments for exported goods or services are cleared against foreign loans and businesses satisfy all the following conditions, procedures and dossiers: - Borrowing contract (for financial loans of under one year); or loan registration certificate of the State Bank of Vietnam (for loans of over one year). - Voucher on bank account transfer of funds into Vietnam by the foreign party. The mode of payment for exported goods or services by clearing against foreign loans must be stated in the export contract. - The foreign party’s written certification of the loan clearing. - Any difference between the value of exported goods or services and the foreign loan must be paid via bank. Vouchers of such via-bank payment must comply with this Point. b.2/ The exporter uses payments for exported goods or services as capital contribution to an overseas importer and this business satisfies all the following procedures and dossier requirements: - It has a capital contribution contract. - The use of payments for exported goods or services as capital contribution to an overseas importer is stated in the export contract. - In case the contributed capital amount is smaller than the revenues from exported goods, the difference is paid via bank under this Point. b.3/ The foreign party authorizes a third party that is a foreign-based organization or individual to make payment and the authorized payment is stated in the export contract (or an annex or contract modification note, if any). b.4/ The foreign party requests a third party being a Vietnam-based organization to clear liabilities with the foreign party by making via-bank payment of the amount payable by the foreign party to the exporter, and this request for liability-clearing payment is stated in the export contract (or an annex or contract modification note, if any) and there is a payment voucher being the credit note of the exporter’s bank of the amount received from the third party’s account, at the same time, the exporter produces the written record of comparison of liabilities certified by the foreign party and the third party. b.5/ The foreign party (the importer) authorizes a third party being a foreign-based organization or individual to make payment; the third party requests a Vietnam-based organization (the fourth party) to clear liabilities Vietnam Law & Legal Forum 49 with the third party by making via-bank payment of the amount payable by the importer to the Vietnamese exporter; and the exporter satisfies all the conditions and dossier requirements as follows: - The export contract (or an annex or contract modification note, if any) provides the authorized payment and clearing of liabilities between parties. - The payment voucher is the bank’s credit note of the amount received from the fourth party’s account by the Vietnamese exporter. - The note of comparison of liabilities certified by involved parties (between the exporter and importer and between the foreign-based third party and Vietnam-based fourth party). b.6/ The foreign party authorizes its Vietnam-based representative office to make payment to the exporter’s account and this authorized payment is provided in the export contract (or an annex or contract modification note, if any). b.7/ The foreign party makes payment from its current deposit account opened at a credit institution in Vietnam and this payment is stated in the export contract (or an annex or contract modification note, if any). The payment voucher is the credit note of the exporter’s bank of the amount received from the current account of the foreign purchaser that has signed the contract. Also regarded as via-bank payment is the case in which goods are exported to a foreign purchaser being a private enterprise, the payment is made through the private enterprise owner’s current account opened a Vietnambased credit institution and such payment is provided in the export contract (or an annex or contract modification not, if any). When inspecting tax credit and refund for exported goods paid through current accounts, the tax office should coordinate with the credit institution at which the foreign purchaser opens its account to ensure proper and lawful payment and transfer of funds. b.8/ In case the foreign party makes via-bank payment but the paid amount indicated in the payment voucher does not match the amount payable under the contract or its annex: - If the paid amount indicated in the via-bank payment voucher is smaller than the amount payable under the contract or its annex, the business shall clearly state the reason such as bank transfer charges, price decrease as a result of goods’ poor quality or lacking quantity (in this case, a written agreement on price decrease is required), etc.; Vietnam Law & Legal Forum 50 - If the paid amount indicated in the via-bank payment voucher is larger than the amount payable under the contract or its annex, the business shall clearly state the reason such as lump-sum payment for many contracts, payment advances, etc. The business shall undertake to take responsibility before law for its reasons given to the tax office and documents on modifications (if any). b.9/ In case the foreign party makes via-bank payment, but the via-bank payment voucher is not from the bank of payment named in the contract, if the payment voucher indicates the names of the payer and payee, the export contract serial number and the payment value matching the signed export contract, such voucher is regarded to be valid. b.10/ The business exports goods or services to a foreign party (second party) and concurrently imports goods or services from another foreign party or purchases goods or services from a Vietnam-based organization or individual (third party); the business reaches agreement with the second party and the third party on the second party’s via-bank payment to the third party of the amount payable by the business to the third party and the clearing of liabilities between the parties is provided in the export, import or purchase contract (or its annex or modification note, if any) and the business produces the note of comparison of liabilities certified by the involved parties (between the business and the second party, and the business and the third party). b.11/ In case goods exported to a country are rejected by the foreign purchaser for objective reasons and the exporter finds another purchaser in the same country to sell that export batch, the tax refund dossier comprises the entire export dossier related to the export contract signed with the original purchaser (contract, customs declaration of exported goods, invoice), the exporter’s written explanation about the discrepancy in the purchaser name (covering its commitment to taking responsibility for the truthfulness of information without any frauds), the entire export dossier related to the export contract signed with the new purchaser (contract, sale invoice, via-bank payment voucher under law and other vouchers, if any). c/ Other cases of payment for exported goods and services as prescribed by the Government: c.1/ For businesses sending guest workers abroad which collect money directly from these workers, receipts of cash amounts paid by these workers are required. c.2/ For businesses exporting goods for sale at overseas fairs or exhibitions which collect and transfer home cash in local currencies of the countries where these trade fairs or exhibitions are organized, customs declarations Vietnam Law & Legal Forum 51 of foreign-currency amounts from the goods sale transferred home and vouchers on remittance of these amounts into banks in Vietnam are required. c.3/ In case of exporting goods or services to pay the Government’s foreign debts, the commercial bank’s certification that the exported goods lot has been accepted by the foreign country for debt payment or that the document set has been forwarded to the foreign country for debt payment is required. Payment vouchers in this case must comply with the Finance Ministry’s guidance. c.4/ Payment for exported goods or services in kind means the case in which goods (including goods processed for export) or services are exported to a foreign organization or individual (referred to as foreign party for short) but the payment between the Vietnamese enterprise and foreign party is made by clearing the value of exported goods or services or exported goods-processing charges against the value of goods or services purchased from foreign parties. Exported goods or services paid in kind must satisfy additional dossier requirements as follows: - The mode of payment for exported goods in kind is stated in the export contract. - The foreign party’s goods or service purchase contract. - The customs declaration of imported goods paid for exported goods or services. - The foreign party’s written certification of the clearing payment between the exported goods or services and the goods or services imported from the foreign party. - When a difference arises from the clearing of the value of exported goods or services against that of imported goods or services, such difference must be paid via bank. Vouchers of such via-bank payment must comply with this Clause. c.5/ The export of goods to a bordering country under the Prime Minister’s regulations on management of border trade with bordering countries must comply with the guidance of the Finance Ministry and the State Bank. c.6/ Some cases involving other modes of payment for exported goods and services under related laws. d/ Cases of export without via-bank payment entitled to tax credit and refund: Vietnam Law & Legal Forum 52 d.1/ In case of insolvency of the foreign party, the exporter shall make a written explanation and may use one of the following papers to replace the via-bank payment voucher: - The customs declaration of imports from Vietnam registered with a customs office of the country of importation (1 copy); - A petition lodged with a court or competent authority of the country in which the purchaser resides, together with such authority’s notice or written certification of acceptance of the petition (1 copy); - A foreign court’s ruling on the exporter’s winning of the lawsuit (1 copy); - A foreign competent authority’s written certification (or notice) of the purchaser’s bankruptcy or insolvency (1 copy). d.2/ For poor quality exports subject to disposal, the exporter shall make a written explanation and may use the record of disposal (or a written certification of disposal) of goods overseas made by the disposing authority (1 copy), together with the voucher of via-bank payment for disposal expenses payable by the exporter or a paper proving the purchaser’s or third party’s responsibility for paying disposal expenses (1 copy). When the importer has to carry out procedures for disposal overseas, the disposal record (or written certification of disposal) must indicate the importer’s name. d.3/ For lost exports, the goods exporter shall make a written explanation and may use one of the following papers to replace the via-bank payment voucher: - Written certification of the loss outside Vietnam by a relevant authority (1 copy); - Record of the loss of goods during transportation outside Vietnam, clearly stating its causes (1 copy); A goods exporter that has received indemnities for exports lost outside Vietnam shall send the via-bank payment voucher of the received amount. Copies of the papers specified at Points d.1, d.2 and d.3 of this Clause are the certified true copies of goods exporters. In case the language used in a third party’s vouchers or written certifications to replace via-bank payment vouchers is other than English or without an English version, a notarized translation is required. If involved parties issue, use and store vouchers electronically, the hard copies of those vouchers are required. Vietnam Law & Legal Forum 53 Goods exporters shall take full responsibility for the accuracy of papers replacing via-bank payment vouchers in the above cases. 4. Value-added invoices for sale of goods or provision of services, or export invoices or invoices of payment for processing of goods. Article 17. Conditions for input VAT credit and refund in some cases in which goods are regarded as exports: 1. Intermediary processed goods as prescribed in the commercial law regarding international goods trading and goods trading and processing agency with foreign countries: a/ Export processing contract and its annexes (if any) signed with the foreign party, clearly stating the goods recipient in Vietnam. b/ Value-added invoice clearly stating the processing charge and the quantity of processed goods delivered to the foreign party (at the rate provided in the contract signed with the foreign party) and the name of the goods recipient designated by the foreign party. c/ Bill of delivery of intermediary processed products (referred to as delivery bill for short), with certifications of the deliverer and the recipient of intermediary processed products and certification of the customs office managing the processing contract of the deliverer and recipient. d/ Payment for goods processed for foreign parties must be made via bank under Article 16 of this Circular. The procedures for delivery and receipt of intermediary processed goods and delivery bills are as guided by the General Department of Customs. Example 50: Company A signs with a foreign party a contract to process 200,000 pairs of shoe soles for export. The processing charge is VND 800 million. The contract clearly states that the shoe soles will be delivered to Company B in Vietnam for production of finished shoes. In this case, Company A is regarded as undertaking the intermediary processing of products for export. On the voucher of delivery of shoe soles to Company B, Company A shall clearly write the quantity, category and specifications of products delivered. The whole turnover of VND 800 million from the processing of shoe soles is entitled to the VAT rate of 0%. 2. Processed goods for on-spot export under law: a/ Goods trading contract or processing contract designating goods delivery in Vietnam; b/ Customs declaration of on-spot exports or imports for which customs procedures have been cleared; Vietnam Law & Legal Forum 54 c/ Value-added invoice or export invoice, clearly stating the names of the foreign purchaser and goods recipient and the place of delivery in Vietnam; d/ Payment for goods sold to foreign traders but delivered in Vietnam shall be made via bank in a freely convertible currency. Via-bank payment vouchers comply with Clause 3, Article 16 of this Circular. When the onspot importer is authorized by the foreign party to pay the on-spot exporter, the currency of payment complies with the foreign exchange law; e/ On-spot exports of foreign-invested enterprises must comply with their investment licenses. 3. For goods and supplies exported by Vietnamese enterprises to implement overseas construction projects, procedures and dossiers for Vietnamese enterprises implementing these projects to enjoy input VAT credit or refund must satisfy the following requirements: a/ There is a customs declaration under Clause 2, Article 16 of this Circular. b/ Exported goods and supplies conform with the list of goods exported for the implementation of an overseas construction project approved by the director of the Vietnamese enterprise implementing that project. c/ There is an export consignment contract (for export consignment). 4. For goods and supplies sold by domestic businesses to Vietnamese enterprises for the implementation of overseas construction projects and delivered overseas under signed contracts, procedures and dossiers for domestic sellers to enjoy input VAT credit or refund for exported goods must satisfy the following requirements: a/ There is a customs declaration under Clause 2, Article 16 of this Circular; b/ Exported goods and supplies conform with the list of goods exported for the implementation of an overseas construction project approved by the director of the Vietnamese enterprise implementing that project; c/ There is a trading contract signed between the domestic business and the Vietnamese enterprise implementing the overseas construction project, clearly stating delivery conditions and quantity, category and value of goods; d/ There is a consignment contract (in case of export consignment); e/ There is a via-bank payment voucher; f/ There is a value-added invoice on goods sale. Vietnam Law & Legal Forum 55 Businesses with exported goods or goods regarded as exports mentioned in Articles 16 and 17 of this Circular that have customs certifications (for exported goods) but lack other formalities and documents as required for each particular case are neither required to calculate output VAT nor entitled to input VAT credit. Particularly for cases involving intermediary processed goods and on-spot exported goods, businesses that lack one of the required formalities or documents shall calculate and pay VAT as for domestically sold goods. Businesses providing export services that fail to satisfy the condition on via-bank payment or the condition for being regarded as via-bank payment may enjoy neither the 0% VAT rate nor VAT credit, but are not required to calculate output VAT. Section 2 TAX REFUND Article 18. Beneficiaries and cases of VAT refund 1. Businesses that pay tax by the tax credit method may be considered for tax refund if they have input VAT amounts not fully credited for three or more consecutive months. The refundable tax amount is the input tax amount not yet fully credited by the time of request for tax refund. Example 51: Enterprise A declares input and output VAT amounts as follows: (Unit of calculation: VND million) Tax declaration month (1) Previous period’s input tax to be credited (2) Input tax Output tax creditable in arising in the the month month (4) (3) Payable (or creditable) VAT in the period March 2012 0 200 100 -100 April 2012 -100 300 350 - 50 May 2012 -50 300 200 -150 In the above example, Enterprise A has an accumulative input tax amount for 3 consecutive months larger than the output VAT amount. Enterprise A is entitled to a VAT refund not exceeding VND 150 million. 2. Businesses established under investment projects that have made business registration and registered to pay VAT by the tax credit method, or under oil and gas exploration and development projects still at the investment stage and not yet in operation are entitled to VAT refund for goods and services used for investment in each year if their investment duration has lasted for one year or more. If the accumulated VAT amount Vietnam Law & Legal Forum 56 for purchased goods and services used for investment is VND 200 million or more, businesses are entitled to VAT refund. 3. Operating businesses paying VAT by the tax credit method that have new investment projects still at the investment stage shall make declarations for clearing VAT amounts on goods and services purchased for new investment projects against VAT amounts on their ongoing production and business activities. After clearing, any uncredited VAT amount on goods and services purchased for investment which is VND 200 million or more may be refunded for investment projects. If the input VAT amount on production and business activities and investment projects is less than VND 200 million and has not been fully credited for 3 months, businesses may enjoy VAT refund under Clause 1 of this Article. Operating businesses paying VAT by the tax credit method that have investment projects on new production facilities in provinces or centrally run cities other than those in which they are headquartered, which are still at the investment stage, have neither commenced operation nor made business and tax registration, and have VAT amounts of VND 200 million or more on goods and services purchased for investment, these VAT amounts may be refunded for investment projects. In this case, businesses shall make separate tax declarations and refund dossiers. If a project has a management unit, this unit shall register, declare and make separate tax refund dossiers with the local tax office with which it has made tax registration (other than the project management unit in the same province or city in which the business is headquartered. In this case, the business shall make VAT refund dossiers). When an investment project to establish a new business is finished and has completed procedures for business registration and tax payment registration, the business being the project owner shall summarize arising VAT amounts, refunded VAT amounts and to-be-refunded VAT amounts of the project for transfer to the new business which shall declare and pay, or request refund of, VAT to the directly managing tax office under regulations. 4. If in a month, a business exports goods or services and has an uncredited input VAT amount of VND 200 million or more on exported goods in that month, it may be considered for VAT refund on a monthly basis. If in a month, a business both exports and domestically sells goods or services and has an uncredited input VAT amount of VND 200 million or more on exported goods or services in that month, but after being cleared against the output VAT on domestically sold goods or services as indicated in the tax declaration of the month concerned, its uncredited input VAT Vietnam Law & Legal Forum 57 amount is less than VND 200 million, the business may not be considered for VAT refund on a monthly basis. If the uncredited input VAT amount on exported goods or services is VND 200 million or more, the business may be considered for VAT refund for exported goods or services on a monthly basis. In case of unability to separately account the input VAT amount for exported goods or services, such amount shall be allocated based on the ratio (%) of revenues from exported goods or services in the period to total revenues of the business in that period. Entities entitled to VAT refund in some cases of export include establishments consigning their goods for export, in case of export consignment; establishments entering into export processing contracts with foreign parties, in case of intermediary export processing; establishments entering into export processing contracts with foreign parties, in case of intermediary processing; businesses having goods and supplies exported for overseas construction projects, in case of goods exported for overseas construction projects; and businesses having on-spot exports, in case of on-spot exports. 5. Businesses shall finalize tax upon their division, split, dissolution, bankruptcy, ownership transformation; or assignment, sale, contracting or lease, for state enterprises, when they have input VAT amounts not yet fully credited or any overpaid VAT amounts. A business still at the investment stage without any production and business activities yet that is dissolved without any arising output VAT amount for its main business line under the investment project may not enjoy VAT refund. If such business has received a refunded amount for its investment project, such amount shall be returned to the state budget. 6. Refund of paid VAT amounts for programs and projects funded with non-refundable official development assistance (ODA) or non-refundable or humanitarian aid: a/ For projects funded with non-refundable ODA: Program or project owners or principal contractors or organizations designated by foreign parties to manage programs or projects may enjoy refund of VAT amounts paid for goods and services purchased in Vietnam for these programs or projects. b/ Vietnamese organizations that use humanitarian aid money of foreign organizations or individuals to purchase goods and services for programs or projects funded with non-refundable or humanitarian aid in Vietnam may enjoy refund of VAT amounts paid for these goods and services. Vietnam Law & Legal Forum 58 Example 52: The Red Cross Society receives VND 200 million as aid from international organizations to purchase humanitarian relief for inhabitants in provinces hit by natural disasters. The VAT-exclusive value of purchased goods is VND 200 million and the VAT amount is VND 20 million. The Red Cross Society will be refunded a tax amount of VND 20 million. The refund of paid VAT amounts for non-refundable ODA-funded programs and projects complies with the Finance Ministry’s guidance. 7. Persons entitled to diplomatic privileges and immunities under the Ordinance on Diplomatic Privileges and Immunities who purchase goods or services in Vietnam for use may be refunded paid VAT amounts indicated in value-added invoices or payment vouchers indicating VATinclusive payment prices. 8. Businesses having tax refund decisions of competent authorities under law. Article 19. VAT refund conditions and procedures 1. Businesses and organizations entitled to VAT refund mentioned in Clauses 1, 2, 3, 4, 5 and 8, Article 18 of this Circular must be businesses paying tax by the credit method, have obtained an enterprise registration certificate or investment license (professional practice permit) or establishment decision of a competent agency, have a seal under law; open and keep accounting books and vouchers under the accounting law; and have a bank account according to their tax identification numbers. 2. Businesses that have declared for tax refund in the VAT declaration forms may not transfer the input tax amount already requested for refund to the creditable tax mount of the subsequent month. 3. VAT refund procedures comply with the Tax Administration Law and its guiding documents. Article 20. Places of tax payment 1. Taxpayers shall make VAT declaration and payment in localities in which they carry out production or business activities. 2. Taxpayers that declare and pay VAT by the credit method and have dependent cost accounting production establishments based in provinces or centrally run cities other than those in which they are headquartered shall pay VAT both in localities in which their production establishments are based and localities in which they are headquartered. 3. VAT declaration and payment comply with the Tax Administration Law and its guiding documents. Vietnam Law & Legal Forum 59 Chapter IV ORGANIZATION OF IMPLEMENTATION Article 21. Effect 1. This Circular takes effect on the effective date (March 1, 2012) of the Government’s Decree No. 121/2011/ND-CP of December 27, 2011, and replaces the Finance Ministry’s Circular No. 129/2008/TT-BTC of December 26, 2008, and Circular No. 112/2009/TT-BTC of June 2, 2009. 2. For real estate transfer contracts signed with customers from January 1, 2009, to before March 1, 2012, under which the first time of payment was from January 1, 2009, and made before March 1, 2012, if the collected payments are not lower than 20% of the total payment values of those contracts, the deductible land price still complies with the Finance Ministry’s Circular No. 129/2008/TT-BTC of December 26, 2008, and the Ministry of Finance’s guiding documents. For real estate transfer contracts signed with customers before March 1, 2012, under which the first time of payment is after March 1, 2012, or the payments collected before March 1, 2012, are lower than 20% of the total payment values of those contracts, the deductible land price complies with the Government’s Decree No. 121/2011/ND-CP and this Circular. 3. To annul provisions on temporary refund of 90% of the input VAT amount for exported goods for which customs procedures have been cleared since January 1, 2012, and which are pending via-bank payment by foreign parties under export contracts, of the Finance Ministry’s Circular No. 94/2010/TT-BTC of June 30, 2010, guiding VAT refund for exported goods. The settlement of refund of the remaining 10% VAT amount (of dossiers for which 90% of VAT amounts have been temporarily refunded as mentioned above) and other issues still complies with the Finance Ministry’s Circular No. 94/2010/TT-BTC. 4. Other effective circulars of the Ministry of Finance guiding VAT continue to be effective. Article 22. Collection of VAT 1. Tax offices shall organize and administer the collection and refund of VAT for businesses. 2. Customs offices shall organize and administer the collection of VAT for imports. Vietnam Law & Legal Forum 60 Any problems arising in the course of implementation should be promptly reported by units and businesses to the Finance Ministry for timely settlement.For the Minister of Finance Deputy Minister DO HOANG ANH TUAN Vietnam Law & Legal Forum 61